The FPC warned that share price valuations remained “stretched”, adding: “Markets remain susceptible to a sharp correction, which could affect the cost and availability of credit to UK households and businesses.”
There are growing concerns that shares remain overvalued, with growing fears that the US tech boom will turn to bust. Goldman Sachs expressed concerns this summer over whether a $1 trillion in AI investment by the country’s tech giants will “ever pay off”.
While the sell-off in August proved to be short-lived, the Bank said the episode highlighted “material” global vulnerabilities. The FPC said it showed there was a “disconnect” between current lofty share valuations and concerns about global growth, with investors remaining jittery about both positive and negative economic news.
“Markets therefore remained susceptible to a sharp correction, with investors sensitive to developments in what remained a challenging global risk environment,” the FPC said.
The FPC, which is in charge of monitoring financial stability, added: “Investors [are] sensitive to short-term developments in a challenging global risk environment. Global vulnerabilities remain material, as does uncertainty around the geopolitical environment and global outlook.”
The FPC’s warning comes as Iran’s bombardment of Israel on Monday night pushed up oil prices and pushed US stock markets lower.
While investors have so far shrugged off concerns about the escalating war in the Middle East, the Bank’s latest systemic risk survey showed geopolitical political risk remained the top concern among finance executives, ahead of cyber attacks and a wider slowdown in the UK economy.
In brighter news for mortgage holders, the Bank highlighted that 1.7m people – roughly a fifth of borrowers – were already benefiting from the Bank’s decision to lower rates to 5pc from 5.25pc in August. Their borrowing costs are tied directly to the Bank’s base rate.