AI Bubble Bursts: Governor Warns Global Economic Downturn Looms

The governor of the Bank of England has warned that artificial intelligence could cause a global economic downturn if the AI bubble bursts. In a letter to G20 finance ministers, Andrew Bailey expressed concern about the volatility caused by energy shocks from the US-Iran war.

Bailey pointed out that markets remain vulnerable to a potentially disorderly correction that could spread across borders, particularly in sovereign debt markets. He also noted that leverage is interacting with high valuations and market concentration, specifically between AI companies and hyper-scalers.

The Bank of England governor emphasized that a large shock or combination of shocks could trigger multiple vulnerabilities simultaneously. This warning comes as the UK government announced a £100 million fund to support British AI start-ups.