Bank of England Warns AI Could Spark Global Economic Downturn

The Governor of the Bank of England, Andrew Bailey, has warned that artificial intelligence (AI) could lead to a global economic downturn. In a letter to G20 finance ministers, he expressed concern about the 'volatility' caused by energy shocks from the US-Iran war and the fragilities in sovereign debt markets.

Bailey, who is also chairman of the Financial Stability Board, noted that markets remain vulnerable to a potentially disorderly correction that could spread across borders. He emphasized that leverage is interacting with high valuations and market concentration, particularly among AI companies and hyper scalers, which could amplify a future market correction.

The warning comes as Chancellor John Healey announced a £100 million fund aimed at backing British AI start-ups to grow the country's 'Sovereign AI' capacity. The UK government wants to ensure that more of the benefits of AI are felt in every UK postcode, particularly in areas like healthcare and cybersecurity.