Source: Sharecast
Publishing its half-yearly Financial Stability Report, the central bank’s Financial Policy Committee confirmed: "Risks to financial stability have increased during 2025.
"Global risks remain elevated and material uncertainty in the global economic outlook persists. Key sources of risk include geopolitical tensions, fragmentation of trade and financial markets, and pressures on sovereign debt markets."
It also noted that many risky asset valuations were "materially stretched", particularly for tech companies involved in the artificial intelligence boom.
Fears about a potential AI bubble have been building for months, as the value of companies involved in the new technology soar to record highs.
Chip maker Nvidia’s market capitalisation touched $5trn earlier in the autumn, while Microsoft’s and Apple’s both exceeded $4trn for the first time.
The FPC noted: "Equity valuations in the US are close to the most stretched they have been sine the dotcom bubble, and in the UK since the global financial crisis. This heightens the risk of a sharp correction."
However, despite the heighted risk climate, the BoE opted to cut capital requirements for the UK’s biggest banks after they passed its latest stress tests.
It found that the sector was well capitalised, and that UK household and corporate aggregate indebtedness remained low.
As a result, in the first review of capital requirements since 2019, the BoE lowered the appropriate benchmark for the level of Tier 1 capital requirements to 13% from 14%, the equivalent to a CET1 ratio of around 11%.
Analysts had been largely expecting the reduction.
"The UK banking system plays a vital role in economy," the BoE said. "It is crucial that it is resilient enough to support UK growth, in good and bad times."
Shares in some of UK's biggest lenders were modestly higher as at 0930 GMT, with Lloyds Banking Group, Barclays, HSBC Holdings and NatWest all up 1%.