LONDON, Dec 2 (KUNA) -- The Bank of England has warned of a "sharp correction" in the value of major tech companies with growing fears of an artificial intelligence bubble.
The central bank's financial stability report 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.
It warned valuations are "particularly stretched" for companies focused on AI.
In its report the Bank also announced plans to lower the amount of capital High Street banks need to hold in a bid to boost lending and spur economic growth.
It marks the first reduction in the amount lenders need to hold since the 2008 financial crisis, and followed stress tests showing they would be able to withstand a crisis scenario with unemployment doubling, house prices plummeting and the economy contracting by 5 percent.
The Bank said the growth of the AI 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.
It cited industry figures forecasting spending on AI infrastructure could top USD 5 trillion and 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 central bank also said the risks to financial stability had risen during 2025, citing geopolitical tensions, global trade wars and rising borrowing costs for governments.
It said growing tension between countries had specifically raised the prospect of cyber-attacks and other disruptions.
After assessing High Street lenders' ability to cope in a crisis situation, the Bank has proposed lowering the benchmark for Tier 1 capital requirements for firms to 13 percent from the 14 percent level it has been at since 2015. The requirement refers to the buffer banks must hold in case of any losses from risky lending. (end) nbs.ibi