The specter of financial contagion is looming over global markets, the Bank of England has warned, suggesting that a bust in the artificial intelligence sector could spread rapidly through the interconnected financial system. The Financial Policy Committee (FPC) stated that the risk of a “sharp market correction” with global reach has increased.
The initial infection point, according to the FPC, would be the “stretched” AI market. A collapse in the high-flying valuations of firms like OpenAI ($500 billion), potentially triggered by poor profitability data, would be the start of the outbreak.
The contagion would spread as a tech crash shatters investor confidence, leading to a flight from risk in all asset classes. The Bank warned this would cause “finance drying up for households and businesses,” even those with no direct connection to the AI sector.
This scenario is made more dangerous by a parallel political threat. The FPC is concerned that Donald Trump’s attacks on the US Federal Reserve could trigger a separate contagion event: a crisis of confidence in the US dollar that would spread through global currency and debt markets.
The FPC’s report makes it clear that the UK would not be immune to this pandemic. The “risk of spillovers… is material,” meaning a financial virus that starts in the US would quickly infect the British economy.