The Bank of England has fired a warning shot across the bows of tech investors, cautioning that the fervour surrounding artificial intelligence stocks is veering dangerously close to ‘irrational exuberance’. In a statement that rattled markets this morning, Governor Andrew Bailey pointed to soaring valuations and a disconnect from fundamentals, drawing parallels with the dot-com era. The FTSE 100 dipped 1.2% in early trading, led by a sell-off in tech-heavy sectors, as gilt yields edged higher on fears that the central bank may be preparing to tap the brakes on speculative excess.
For those of us who remember the wreckage of 2000, this has a familiar whiff. The market is pricing in a future that may not materialise as quickly as the hype suggests. AI is transformative, yes, but not every startup with ‘GPT’ in its name deserves a unicorn valuation. The BoE’s intervention is a cold shower for a market that has been drunk on low rates and narrative. Capital flight from risk assets is already visible, with money rotating into bonds and defensive stocks. The pound has weakened against the dollar as investors seek safe havens.
Fiscal responsibility, or lack thereof, is the elephant in the room. The government’s spending plans, combined with the BoE’s tightening bias, are creating a toxic cocktail for growth. If the AI bubble deflates, the fallout could hit the real economy through reduced corporate investment and job losses in the tech sector. The central bank is walking a tightrope: it must curb inflation without puncturing the bubble entirely. But bubbles, once pricked, have a habit of bursting.
Market volatility will be the new normal for the foreseeable future. The implied volatility index for tech stocks has spiked 30% this week. Investors should brace for more turbulence. The BoE’s warning is not a call to panic, but a reminder that gravity always reasserts itself. The bottom line: if you are betting on AI hype, make sure you have a parachute.
