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 asset prices need to adjust.
Breeden, who is responsible for financial stability, said that if the adjustment brings "markets back to levels that are perhaps more consistent with growth prospects, profitability and other relevant factors," then such an adjustment would be welcome.
Last week, after Democrats won a landslide victory in the midterm elections, markets worried that Democratic advantages in Congress and multiple states would lead to tighter AI regulatory policies. Stricter AI regulation and local restrictions on data center construction could slow the pace of U.S. AI infrastructure investment and deal a blow to capital expenditure and earnings expectations for companies across the AI supply chain.
Such concerns triggered a broad selloff in AI-related stocks, dragging U.S. equities to their biggest 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 transmit risk across different markets, then an otherwise orderly valuation correction could escalate into broader financial market turmoil.
Currently, the Bank of England is investigating private markets rather than focusing specifically on the AI sector. Breeden said private markets are relatively less transparent, and the central bank is conducting a study "aimed at understanding the current situation." She added that one in every ten U.K. employees 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 are complexly interconnected with traditional financial institutions such as banks and insurers. As the scale of private equity and private credit continues to expand, once these markets face tighter financing conditions or asset valuation write-downs, 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 by its Financial Policy Committee in September, the central bank pointed out that AI-related debt issuance was growing rapidly, and capital markets' exposure to the AI industry's development was expanding accordingly. Some AI companies carry high levels of debt, and related financing arrangements sometimes involve complex structures, insufficient transparency and so-called "circular financing" — problems that could magnify investor losses if market expectations for AI growth prospects fail to materialize.
The Bank of England also noted at the time that AI and semiconductor stock valuations had fallen sharply in July, with some leveraged investors suffering major losses due to concentrated positions, and position liquidation and deleveraging further amplifying market volatility. However, market operations remained generally orderly at that time, with no signs of contagion to core financial markets.
The Bank of England also warned that a more significant shift in market expectations regarding the pace of AI technological development, commercialization progress, or the profitability of related companies could still trigger more violent market corrections.
For the Bank of England, the key at present is to distinguish between normal market valuation adjustments and financial contagion that could trigger systemic risks. 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 generate a larger shock through channels such as financing contraction, asset selloffs 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 U.K. private sector has shown greater resilience than expected in the face of soaring energy prices and rising costs and taxes, because companies have learned to adapt to recurring supply shocks. "In the U.K., I think what has surprised us most is the ability of businesses to adapt to shocks. They have become used to having to remain flexible — where 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 into inflation. However, Breeden warned that companies cannot fully absorb shocks through profit margins alone, so "there is ultimately a limit to how much room this approach provides." She said the question going forward is whether companies will raise prices or whether demand will weaken.
The Bank of England raised interest rates by 25 basis points to 4% last week as expected, but simultaneously warned that inflation could reach around 5% in 2027 — more than double its 2% target. The central bank's Monetary Policy Committee warned that interest rates may need to be raised at least once more to curb consumer price increases.
Bank of England 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 a possibility to act. December, you know, is certainly possible," she said.
Lombardelli added: "I think it depends on what we observe regarding the conflict situation and energy prices, and on what we see from broader economic data, and how all of these factors interact. But I would not rule it out. Equally, at this point I don't have enough information to make a judgment."
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