Bank of England Sounds Alarm Over $450 Billion AI Debt Surge
The Bank of England has sounded an alarm about a rapidly growing debt surge tied to artificial intelligence infrastructure, warning it increases market correction risk. According to the central bank, AI-related debt issuance reached $450 billion in the year to September, more than doubling last year's total.
Global AI-related debt sales are expected to surpass UK government bond issuance in 2024, broadening capital market exposure and raising systemic risk concerns. The Bank says this rapid increase in borrowing widens capital market exposure to developments in the sector.
The financial system faces a higher risk of sharper market corrections as expectations for AI earnings weaken due to concerns over development or adoption pace. Regulators cannot stand aside, according to Governor Andrew Bailey, and assume the AI industry will resolve threats to financial stability.
Heavy leverage used by hedge funds in UK government bond markets intensifies correction risks, while bank lending in gilt repo markets has doubled to about 200 billion pounds since 2023.