Sarah Breeden has warned that investors should be prepared for a potential correction in global equity markets, citing elevated valuations and mounting risks.
The Bank of England official said she is concerned that multiple risks could materialise simultaneously, creating a more severe market shock.
Her comments come as the S&P 500 and Nasdaq Composite have both reached record highs this week, despite geopolitical tensions linked to the Iran conflict and concerns over inflation.
Breeden said asset prices appear stretched relative to the broader risk environment, warning that “an adjustment” is likely at some point.
She highlighted the risk of a macroeconomic shock coinciding with other vulnerabilities, such as weakening confidence in private credit markets or a correction in AI-related valuations.
While she did not predict an imminent downturn, Breeden stressed the importance of ensuring the financial system is resilient in the event of a sharp market correction and assessing how any decline could feed through to the wider economy.
