Bank of England Deputy Governor: AI asset selloff does not yet constitute an urgent concern, but be alert to valuation adjustments evolving into financial market risks.

Bank of England Deputy Governor Sarah Breeden said the recent selloff in artificial intelligence (AI)-related stocks does not currently constitute an urgent concern, as the market adjustment still appears orderly. Speaking at a conference in London on Tuesday, Breeden said the repricing of AI companies' equity and debt "is not necessarily something we should be worried about." For months, the Bank of England has been warning that market valuations are too high and that related asset prices need to adjust. Breeden, who is responsible for financial stability, said the adjustment would be welcome if it brings "markets back to levels that are perhaps more consistent with growth prospects, profitability and other relevant factors." Last week, after Democrats won a landslide midterm victory, markets worried that Democratic advantages in Congress and multiple states would lead to tighter AI regulation. Stricter AI oversight and local restrictions on data center construction could slow the U.S. AI infrastructure investment process and hit the capital expenditure and earnings expectations of companies across the AI supply chain. These concerns triggered a broad selloff in AI-related stocks, dragging U.S. equities to their largest weekly decline since April 2025. Breeden said the Bank of England is more concerned about "the risk that a price adjustment triggers financial market behavior that then amplifies the shock." In other words, if falling asset prices force leveraged investors to liquidate positions, prompt financial institutions to tighten financing, or cause risk to spill over between different markets, then an otherwise orderly valuation correction could evolve into broader financial market turmoil. Currently, the Bank of England is investigating private markets, rather than focusing specifically on AI. Breeden said private markets are relatively less transparent, and the Bank of England is conducting "a piece of research aimed at understanding what is currently happening." She added that one in every 10 employees in the UK works for a private equity-related company, and 15% of corporate debt comes from private markets. The Bank of England has previously noted that private markets have become an important source of financing for the real economy, but they have complex interconnections with traditional financial institutions such as banks and insurers. As the scale of private equity and private credit continues to expand, if related markets face tighter financing conditions or downward asset valuation adjustments, risks could spread to the broader financial system through debt financing, investment portfolios and links between financial institutions. It is worth noting that the Bank of England's attention to AI market risks did not begin with this selloff. In the meeting minutes released in September, the central bank's Financial Policy Committee noted that AI-related debt issuance was growing rapidly, and capital markets' exposure to the AI industry's development was expanding accordingly. Some AI companies have relatively high levels of debt, and related financing arrangements sometimes involve complex structures, insufficient transparency and so-called "circular financing." Once market expectations for AI growth prospects fail to materialize, this could exacerbate investor losses. The Bank of England also noted at the time that AI and semiconductor stock valuations had fallen sharply in July, and some leveraged investors suffered significant losses due to concentrated positions. Position liquidation and deleveraging further amplified market volatility. However, market operations at the time remained generally orderly, with no signs of contagion to core financial markets. The Bank of England also warned that a larger adjustment in market expectations for the pace of AI technology development, commercialization progress or related companies' profitability could still trigger a more severe market correction. For the Bank of England, the key now is to distinguish between normal market valuation adjustments and financial contagion that could trigger systemic risk. A decline in AI company share prices does not necessarily mean financial stability is under threat, but if the links between highly valued assets, leveraged investors, private credit and bank financing deepen further, a reversal in market sentiment could produce a larger shock through channels such as financing contraction, asset selling and the spread of credit risk. Breeden's remarks also reflect the Bank of England's policy stance it is not trying to prevent the market from repricing AI assets, but rather wants to ensure that this process does not evolve into a broader financial stability problem. In addition, Breeden noted that, overall, the UK private sector has shown greater resilience than expected in the face of surging energy prices and rising costs and taxes, because companies have learned to adapt to repeated supply shocks. "In the UK, I think what has surprised us most is the ability of businesses to adapt to shocks. They have become used to having to be flexible if costs rise in some areas, they cut costs in others," she said. By absorbing the impact of shocks, companies have delayed the pass-through of costs to inflation. However, Breeden warned that companies cannot fully absorb shocks through profit margins, so "there is ultimately a limit to how much of this can be done." She said the question going forward is whether companies will raise prices or demand will weaken. The Bank of England raised interest rates by 25 basis points to 4% last week as expected, but warned that inflation could reach around 5% in 2027, more than double its 2% target. The bank's Monetary Policy Committee warned that interest rates may need to rise at least once more to curb consumer price increases. Deputy Governor for Monetary Policy Clare Lombardelli said in an interview that another 25 basis point rate hike as early as December could be reasonable. "For us, every meeting is live. December, you know, is certainly possible," she said. Lombardelli added: "I think it depends on what we see in the conflict situation and energy prices, what we see in the broader economic data, and how all of these factors interact. But I would not rule it out. Equally, I do not currently have enough information to make a judgment."