In a sobering new analysis, the Bank of England has pointed to “material bottlenecks” in the AI supply chain and growing political friction in the US as key risks to global financial stability. The Financial Policy Committee (FPC) stated that these factors have increased the chance of a “sharp market correction.”
The bottlenecks relate to the physical inputs needed for AI development, including “power, data or commodity supply chains.” The FPC warned that any disruption here could undermine the “stretched” valuations of AI firms like OpenAI ($500 billion), which are predicated on smooth, uninterrupted growth.
The political friction centres on Donald Trump’s “continued commentary about Federal Reserve independence.” This is seen as a direct threat to the credibility of the world’s most important central bank, which could trigger a chaotic “repricing of US dollar assets.”
The Bank is concerned that these two distinct risks—one logistical, one political—are creating a fragile environment where a shock is more likely. They also highlight the market’s failure to price in these non-financial risks adequately.
The FPC concluded with a warning for the UK, stating that its status as a global financial hub makes it highly vulnerable. The “risk of spillovers… is material,” and a crisis originating from either bottlenecks or politics would have a direct impact on the British economy.