The Bank of England on Tuesday warned that a multi-trillion-dollar AI infrastructure spending boom, fueled by debt, could falter amid “materially stretched” stock market valuations.
The UK central bank said that 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.
The central bank also noted the collapse of U.S. car parts maker First Brands and auto dealership and lender Tricolor, which Governor Andrew Bailey said in October might be a warning of bigger problems to come.
As such, the BoE intends to conduct a stress test focused on the resilience of the private market ecosystem, with more details to come later this week.
The central bank also noted that governments globally face spending pressures, given the context of changing demographics and geopolitical risk, potentially constraining their capacity to respond to future shocks.
As an open economy with a large financial center, the UK is exposed to global shocks that could transmit through multiple, interconnected channels, it added.
The U.K. government last month said thousands of new jobs and billions of pounds of investment in AI have been announced across the U.K. as a driver of growth.