The Bank of England is warning of a potential domino effect, where a sharp correction in the artificial intelligence market could topple the broader financial system. The Financial Policy Committee (FPC) stated that the risk of such an event “has increased” due to “stretched” valuations and the interconnected nature of modern finance.
The first domino, according to the FPC, would be the AI tech stocks. Companies like OpenAI ($500 billion) and Anthropic ($170 billion) have valuations built on hype. A loss of confidence, potentially triggered by data like the MIT study showing 95% of firms have no AI returns, could cause these stocks to collapse.
This collapse would not happen in isolation. It could trigger a wider market sell-off and, crucially, lead to a tightening of financial conditions. The Bank warned this could result in “finance drying up for households and businesses,” the next domino to fall.
This fragile setup is made worse by political instability in the US. The FPC is concerned that Donald Trump’s attacks on the Federal Reserve could trigger a separate financial shock—a “sharp repricing of US dollar assets”—which could start its own chain reaction of falling dominoes.
The FPC’s report makes it clear that the UK is in the path of this potential cascade. As a global financial centre, the “risk of spillovers… is material,” meaning a crisis that starts in the US tech sector could end in economic hardship for British citizens.