UK share values 'most stretched' since 2008, Bank warns

The Bank of England has warned of a "sharp correction" in the value of major tech companies with growing fears of an artificial intelligence (AI) bubble.

It said share prices in the UK are close to the "most stretched" they have been since the 2008 global financial crisis, while equity valuations in the US are reminiscent of those before the dotcom bubble burst.

The central bank's financial stability report warned valuations are "particularly stretched" for companies focused on AI.

It said the growth of the sector in the next five years would be fuelled by trillions of dollars of debt, raising financial stability risks if the value of the companies falls.

The Bank of England cited industry figures forecasting spending on AI infrastructure could top $5tn (£3.8tn).

It said much of this would be funded by AI firms themselves, but around half would come from outside sources, mostly through debt.

"Deeper links between AI firms and credit markets, and increasing interconnections between those firms, mean that, should an asset price correction occur, losses on lending could increase financial stability risks," it said.

The Bank of England is the latest institution to sound the alarm over a potential crash in the value of AI firms reminiscent of previous incidents such as the financial crisis and the dotcom bubble.

Jamie Dimon, the chief executive of JP Morgan, told the BBC in October he is "far more worried than others" about the risk of a serious market correction in the coming years. The International Monetary Fund (IMF) has also warned of a "sudden, sharp correction", saying in a recent report that markets appear "complacent".

The dotcom booms refers to a period in the late 1990s, during which the values of early internet companies surged amid a wave of optimism for what was then a new technology, before the bubble burst in early 2000 - with many share prices collapsed.

This led to some companies going bust, resulting in job losses.

A drop in share prices can also hit the value of people's savings including their pension funds.

Fears over an AI-related stock market correction come as Chancellor Rachel Reeves used her Budget to encourage savers to pile cash into stocks and shares by reducing the amounts which can be saved in cash Isas.

In its latest report, the Bank of England said the risks to financial stability have risen during 2025, citing geopolitical tensions, global trade wars and rising borrowing costs for governments.

It said growing tension between countries has specifically raised the prospect of cyberattacks and other disruptions.

Elsewhere in the financial stability report, the Bank of England warned homeowners coming off fixed rate mortgages in the next two years face a £64 increase in their monthly repayments.

The central bank said the typical owner-occupier coming off a fixed rate will see an 8% jump in their bills as the impact of higher interest rates continues to bite.

In total, 3.9 million people, or 43% of mortgage-holders, are expected to refinance at higher rates by 2028, the bank said.

But a third will see their monthly payments fall in that period, it added, with interest rates having fallen significantly since a spike in 2022.

The Bank of England's base rate, which influences the cost of borrowing for individuals, including mortgages, has fallen from a peak of 5.25% in 2024 to 4%.