The Governor of the Bank of England, Andrew Bailey, faced pointed questions on Tuesday about whether the UK is sowing the seeds of another financial crisis. The interrogation followed the publication of the central bank's latest Financial Stability Report, which painted a concerning picture of global risks.
Governor Bailey Denies Crisis Claims
When directly asked if recent changes to bank capital requirements could trigger a crash similar to 2008, Andrew Bailey issued a robust denial. He described the regulatory adjustments as the "sensible" course of action. However, the Bank's own report drew stark parallels between current market conditions and the periods preceding historic downturns, specifically highlighting the artificial intelligence investment frenzy.
Stretched Valuations and Spillover Risks
The Financial Policy Committee (FPC) stated that risks to global financial stability have increased during 2025. It offered a sobering assessment of equity markets, noting valuations in the United States are near their most stretched levels since the dot-com bubble. For the UK, valuations are at heights not seen since the global financial crisis.
"This heightens the risk of a sharp correction," the committee warned. While the FTSE 100's heavy weighting towards traditional sectors like healthcare, banking, and oil has somewhat insulated it from the AI mania, the UK remains highly vulnerable. The FPC report explicitly cautioned that the nation, as an open economy with a large financial centre, would likely suffer significant "spillover" from any global shock.
The UK is exposed to global shocks that could transmit through multiple, interconnected channels, the report added. This means that even if a crisis does not originate domestically, international nerves over AI valuations and private credit are keeping Threadneedle Street on high alert.
Context from the City
The financial stability warnings came on Tuesday 02 December 2025, setting the tone for Wednesday's trading session. The Bank's alert underscores a growing concern among regulators worldwide that the breakneck pace of investment in artificial intelligence may be creating an unsustainable asset bubble.
