URGENT UPDATE: A sudden collapse in the artificial intelligence stock market bubble could inflict a staggering £26 billion hole in UK government finances, jeopardizing Chancellor Rachel Reeves’ plans for fiscal balance. This alarming forecast was just released by the Office for Budget Responsibility (OBR) on November 26, 2025, highlighting the fragile state of public finances amid the tech stock surge.
Experts warn that a downturn in the AI sector could force the government to consider raising taxes or slashing spending, affecting households across the UK. The OBR’s analysis is the first of its kind, laying bare the potential fallout of a significant decline in tech stock values, particularly those of major players like Nvidia.
The Bank of England and the International Monetary Fund (IMF) have also issued grave warnings about a potential market downturn, which could ripple out beyond the tech sector. A worst-case scenario projected by the OBR models a 35 percent slump in both global and UK share prices, leading to a substantial decrease in household wealth and business valuations.
According to the OBR, this scenario would result in a 0.6 percent reduction in gross domestic product (GDP) in the coming years as consumers tighten their spending and businesses delay investments. Tax revenues for the financial year 2027/28 could face a massive £27 billion shortfall, pushing borrowing levels £26 billion higher than current forecasts.
Reeves’ fiscal headroom, currently estimated at £22 billion, could plummet to just £6 billion if this AI bubble bursts, severely limiting her financial options moving forward.
The OBR’s warning comes as the European Central Bank also raised alarms over what it described as “stretched” market valuations, suggesting that the ongoing tech stock rally—dominated by the so-called “Magnificent Seven” companies such as Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—is heavily driven by speculative investments.
The recent surge in US tech stocks has been fueled by investor enthusiasm over the transformative potential of AI in various sectors. However, analysts caution that these skyrocketing valuations may create a precarious bubble that, if burst, could trigger severe financial repercussions.
As the situation develops, it remains critical for investors, policymakers, and households to stay informed and prepared for potential economic shifts resulting from market volatility. The implications of this warning are profound, affecting not just the government’s ability to meet its fiscal goals but also the broader economic landscape for UK citizens.
WHAT TO WATCH FOR: Keep an eye on market trends in the coming weeks, as signs of a downturn in AI stocks could prompt immediate government action on fiscal policy.
This developing story will continue to evolve, and it is crucial for stakeholders to remain vigilant amidst these uncertain economic conditions.
