UK's Bank of England Sounds Alarm on Potential Global Economic Downturn from AI Bubble Bursting

Bank of England Governor Andrew Bailey has warned that artificial intelligence (AI) could lead to a global economic downturn if the AI bubble bursts. In a letter to G20 finance ministers, Bailey said that 'a future market correction' could spread across the world, causing significant economic instability.

The warning comes as Chancellor John Healey announced a £100 million fund aimed at backing British AI startups. The UK government is investing in homegrown AI technology, dubbed 'Sovereign AI', to reduce its reliance on foreign services and infrastructure.

Bailey's letter also highlighted the volatility caused by energy shocks from the US-Iran war and the fragility of sovereign debt markets. He expressed concern that a large shock or combination of shocks could trigger multiple vulnerabilities, leading to a disorderly correction in global markets.