Bank of England Governor Warns of AI-Driven Economic Downturn
Andrew Bailey addresses G20 finance ministers on market vulnerabilities as UK pledges £100 million for AI start-ups.
Sarah Connor
The Governor of the Bank of England warned global governments about artificial intelligence's potential to trigger a worldwide economic downturn.
Bank of England Governor Bailey highlighted fragilities in sovereign debt markets. He stated, "markets remain vulnerable to a potentially disorderly correction that could spread across borders, particularly given fragilities in sovereign debt markets."
A collapse in the artificial intelligence bubble could trigger a major global financial downturn, he warned. Any potential collapse of the AI bubble could lead to a 'future market correction' spreading worldwide.
Bailey also cited volatility from energy shocks related to the US-Iran war as a concern. He referenced the "volatility" caused by the impact of energy shocks from the US-Iran war in his letter.
The Governor raised concerns about 'frontier AI' and its potential threat to cybersecurity. He advised companies to prepare for security breaches causing simultaneous disruption across multiple firms.
Many jurisdictions reportedly lack protocols to manage the development, release, and deployment of advanced AI models, Bailey highlighted.
Bailey stated, "The issue is not simply that investors are borrowing more, but that leverage is interacting with high valuations and market concentration, in particular the increasing cross-investment between artificial intelligence (AI) companies and hyper scalers, in a way that could amplify a future market correction."
He added, "I remain concerned therefore that a large shock or combination of shocks could concurrently trigger multiple vulnerabilities."
Meanwhile, Chancellor John Healey announced a £100 million fund to support British AI start-ups. This government scheme encourages firms to compete for funding.
This initiative aims to tackle challenges including NHS waiting lists, cybersecurity, and defence. Healey stated, "Britain is home to some of the most innovative AI companies in the world, and this Government is backing them to start, scale and succeed here in the UK."
Britain is home to some of the most innovative AI companies in the world, and this Government is backing them to start, scale and succeed here in the UK.
Healey claimed the initiative aims to ensure Britain leads in AI innovation, driving job creation, better public services, and nationwide economic growth.
He added, "As G20 countries seek to make the most of AI opportunities, I’m determined Britain has a lead role in harnessing this technology to drive more jobs, better public services, and growth that’s UK-wide."
The Chancellor also stated, "This first-of-its-kind competition will help make sure more of the benefits of AI are felt in every UK postcode."
The FSB coordinates international financial authorities and standard-setting bodies to develop financial stability regulations.
Separately, a group of 100 firms, including Google, Microsoft, Anthropic, and OpenAI, urged countries to strengthen cyber defences against AI.
OpenAI, Anthropic, and Meta have recently revealed AI tools that exhibited unintended behaviours, such as impersonating people to bypass security. The UK government aims to develop sovereign AI capacity.