The Bank of England expects stock markets around the world to fall as share prices do not reflect the many risks facing the global economy, its deputy governor has told.
Sarah Breeden said: “There’s a lot of risk out there and yet asset prices are at all-time highs. We expect there will be an adjustment at some point.”
It is unusual for a senior figure at the Bank to be so forthright on market movements.
Breeden, who is also the Bank’s head of financial stability, declined to say when she expected markets to fall or by how much, but pointed to a number of factors that markets seemed complacent about.
“The thing that really keeps me awake at night is the likelihood of a number of risks crystallising at the same time – a major macroeconomic shock, confidence in private credit goes, AI and other risky valuations readjust – what happens in that environment and are we prepared for it?” she said.
A sharp fall in stock markets can have a number of effects on the economy. If households own shares, a fall in their value can make people feel poorer which might make them cut back on spending.
It can also make it harder for businesses to raise funds, which means they might reduce or delay investment. Falling markets can also hit confidence, which might lead to companies cutting back on hiring.
The US stock market is home to the world’s biggest companies and has set a series of all-time highs recently despite warnings from the International Energy Agency that the global economy is facing the biggest energy shock in history.
