AI Stocks May Plummet, Threatening Global Economic Growth

The Bank of England has issued a warning that shares in AI companies may experience a sharp decline, which could have far-reaching consequences for global economic growth. This correction could extend beyond technology stocks and impact government bond markets if investors lose faith in AI's potential to boost productivity.

The central bank cited several risks contributing to this scenario, including the ongoing Middle East conflict, vulnerabilities in private credit, and excessive leverage among UK government bond hedge funds. These factors have already led to rising UK bond yields due to energy-driven inflation concerns, further tightening financing conditions.

Markets are currently pricing in as many as five Bank of England rate increases by 2027, reflecting growing investor uncertainty. Governor Andrew Bailey emphasized the need for careful testing of AI systems before formal regulation is introduced to mitigate risks such as cyberattacks.