The Bank of England has warned of expected stock market drops as it says share prices do not currently reflect the fragility of the global economy.
Speaking to the BBC, the Bank of England's Deputy Governor Sarah Breeden said share prices do not currently reflect the number of risks facing the global economy.
She 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."
Breeden, who is also the Head of Financial Stability at the bank, would not be drawn on a timescale for any drop, or on how much markets could fall by, but did highlight a number of factors that markets appeared to be overly complacent about.
She continued: "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?"
Concerns over a possible "private credit crunch" were also voiced, whereby funds which lend privately to businesses have endured sustained losses and have had to restrict withdrawals.
Breeden said: "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.
"It's a private credit crunch, rather than a banking-driven credit crunch, that we're worried about."
FSTE100
The UK's flagship share index, the FTSE 100, was down 6 points at 10,410 shortly after opening this morning.
Brent crude oil futures were down 0.07% trading at $105.91 a barrel.
Companies reporting
- Mondi - Q1 Trading Statement