Bank of England warns: AI bubble burst could trigger capital outflows from US bonds and stocks, causing collateral impact on the UK

(1) The Bank of England analysis points out that if an artificial intelligence (AI) stock bubble bursts, the impact could spread to the UK, affecting local stock prices, government bond yields, and corporate credit markets, triggering a chain reaction. (2) The transmission mechanism is as follows: if major US technology companies fail to meet earnings expectations, investors may interpret this as a downgrade to the future productivity outlook in the US, leading them to withdraw from both US stock and bond markets rather than seeking safe-haven dollars. This would cause the US dollar to weaken and erode the exchange rate factors that have historically provided a buffer to the UK during financial stress. (3) This scenario is markedly different from the 2008 global financial crisis—at that time, investors flocked to safe-haven assets and the dollar strengthened, which in turn boosted the UK's export competitiveness and the value of pound-denominated assets in dollars. In contrast, if the bubble bursts now, the UK would lose this traditional support and face increased downside risk.