BOE Flags Sharper Correction for AI Valuations

Bank of England Governor Andrew Bailey warned this week that AI valuations could face a sharper correction, likening current market conditions to those during the financial crisis. The UK equity valuations have not been as stretched since the 2008 crisis, according to Bailey.

The Bank's Financial Policy Committee stated in its quarterly report that AI valuations remain vulnerable to a 'sharper correction' than the one seen in July. US equity valuations are near their most stretched levels since the dot-com bubble, while UK equity valuations have not been as high since the 2008 crisis.

The Bank also highlighted the concern over debt-funded infrastructure buildout in the AI sector, with industry forecasts suggesting that more than half of the expected $5 trillion in spending over the next five years will come from outside capital, mostly debt. This has raised concerns about loan losses and financial stability issues.