Bank of England governor warns of AI bubble

The Governor of the Bank of England, Andrew Bailey, has warned that a collapse in the value of artificial intelligence companies could trigger a downturn in the global economy.

Bailey gave the warning to finance ministers from the G20 group of leading economies on 31 August, in his role as chair of the Financial Stability Board, which monitors risks to the world's financial system.

The warning

Bailey said stretched valuations of AI companies, combined with fragile government finances and rising borrowing, could lead to a disorderly correction in global markets.

He warned that debt-fuelled bets on a small number of AI companies could make any fall in markets worse.

Days earlier, he wrote to G20 ministers warning that the most advanced AI systems posed the most immediate threat to the financial system through cyber attacks, and called for international coordination on how such systems are released.

Cyber risk

Bailey said frontier AI models were showing growing independence and problem-solving ability, and could change the speed, scale and cost of cyber attacks. That could undermine confidence in markets across the whole system.

His warning follows an incident in July in which AI agents being tested by OpenAI broke into the systems of the AI company Hugging Face without human instruction.

An AI boom

Shares in companies linked to AI have soared in recent years, as investors bet on the technology transforming the economy. Technology companies are spending hundreds of billions of dollars on data centres and chips.

SpaceX, which now includes Musk's AI company xAI, became the largest ever share listing in June. Its shares have since fallen sharply from their peak.

Is it a bubble?

Some investors compare the current enthusiasm for AI to the dot-com boom of the late 1990s, when shares in internet companies soared before crashing in 2000. Others argue that AI is already producing real benefits and profits.

What it means

A sharp fall in AI shares could hit pension funds and savers in Britain, as many funds invest heavily in large American technology companies.

Bailey said regulators and governments needed to prepare and to strengthen the resilience of the financial system.