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The Bank of England has warned of heightened risks to the UK’s financial system but cut the amount of money that banks need to hold in reserve in case of shock.
The twice-yearly financial stability report highlights a series of pressures, from higher government borrowing costs to risks around lending to major tech firms and record stock market valuations – particularly in areas exposed to artificial intelligence (AI).
“Risks to financial stability have increased during 2025,” the Bank‘s financial policy committee (FPC) said.
“Global risks remain elevated and material uncertainty in the global macroeconomic outlook persists. Key sources of risk include geopolitical tensions, fragmentation of trade and financial markets, and pressures on sovereign debt markets.
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“Elevated geopolitical tensions increase the likelihood of cyberattacks and other operational disruptions.
“In the FPC’s judgement, many risky asset valuations remain materially stretched, particularly for technology companies focused on AI.
“Equity valuations in the US are close to the most stretched they have been since the dot-com bubble, and in the UK since the global financial crisis (GFC). This heightens the risk of a sharp correction.”
Its concern extended to the growing trend of tech firms using debt finance to fund investment.
The Bank, which joined the International Monetary Fund in warning over an AI-led bubble in October, delivered its verdict at a time when UK regulators are under pressure from the government to place a greater focus on supporting economic growth.
It is understood, for example, the UK’s ringfencing regime – that sees retail banking separated from…
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