The Bank of England expects stock markets around the world to fall because current share prices do not fully reflect the many risks facing the global economy, Deputy Governor Sarah Breeden said in an interview with the BBC on Friday.
“There’s a lot of risk out there and yet asset prices are at all-time highs,” Breeden told the BBC, warning that a market adjustment is likely at some stage.
Although she declined to predict when markets might fall or how severe any downturn could be, Breeden said her job was to ensure the financial system is ready if such a correction occurs, according to the BBC.
Her comments reflect concerns the Bank raised earlier this month, when it said U.S.-Israeli war on Iran had delivered a major shock to the global economy, with weaker growth, higher inflation and rising borrowing costs increasing the risk of simultaneous stress in government debt markets, private credit and major U.S. technology stocks.
“The thing that really keeps me awake at night is the likelihood of a number of risks crystallizing 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.
Breeden told the BBC that she was worried about the private credit crunch, rather than a banking-driven credit crunch.
“Private credit has gone from nothing to two-and-a-half trillion dollars in the last 15 to 20 years. It hasn’t been tested at this scale with the degree of complexity and interconnections it has with the rest of the financial system so far,” she said.
(Reporting by Shivani Tanna in Bengaluru; editing by Tom Hogue and Muralikumar Anantharaman)
