Bank of England Governor Warns AI Bubble Bursts Could Spark Global Economic Downturn

Andrew Bailey, the governor of the Bank of England, has warned governments worldwide that artificial intelligence (AI) could trigger a global economic downturn. In a letter to G20 finance ministers, who are currently meeting in North Carolina, USA, he expressed concerns about market volatility caused by energy shocks from the US-Iran war.

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

The Bank of England governor remains concerned about the potential for large shocks or combinations of shocks to trigger multiple vulnerabilities concurrently. This warning comes as Chancellor John Healey announced a £100 million fund aimed at backing British AI start-ups, part of the Government's efforts to grow the country's 'Sovereign AI' capacity.