The governor of the Bank of England has warned that the artificial intelligence boom could trigger shocks in financial markets and that the UK needs to be prepared to deal with them. Andrew Bailey said the central bank is watching the vast sums being invested in AI companies “very carefully” and cautioned that “not everybody always wins”.
A bubble waiting to correct
Asked whether he believed an AI bubble could burst, Bailey said: “You could see some correction of asset prices at some point.” The money spent on, and lent to, AI firms over recent years has pushed markets to value some of them as multi-trillion dollar businesses. AI chipmaker Nvidia is currently the world’s most valuable listed company at $5.5tn (£4.14tn), while Alphabet, Meta, Microsoft and Amazon are spending hundreds of billions of dollars on the technology. Anthropic and OpenAI are also preparing to sell shares on the US stock market, moves widely expected to channel hundreds of billions more into the sector.
Bailey’s point was about expectations rather than fraud. “Everybody is currently priced to be a winner,” he said, “and you look back at the past, not everybody is a winner. Google was not the first market leader in internet search. It was Netscape. Nobody can remember Netscape today. It doesn’t exist.”
He added: “We are prepared for the fact that there will be, I think, some shocks come along to markets and we have to deal with that. We have to make sure the system is resilient.”
Cyber attacks and deepfakes
Bailey pointed to other risks from AI. He said the technology has created a “much more powerful way of uncovering vulnerabilities” in software, and that “in the wrong hands… it’s a very powerful, potentially very powerful, weapon”.
He also raised the rise of deepfakes, AI-generated images and videos of real people. Bailey has personal experience of the problem: in June, deepfake images depicting him and Nigel Farage in a physical fight were promoted on social platform X. The Bank has struggled to trace where they came from. “We’ve got to be able to trace these things back. And we need a lot of help from the tech sector to do that,” he said.
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Despite the risks, Bailey believes AI has “great potential to strengthen growth in our economies” and singled out its ability to speed up the work supporting the Monetary Policy Committee, which sets interest rates. “It’s not taking a decision, but it’s a tool in the hands of the policy maker and that’s good,” he said.
Bond markets under pressure
Bailey’s warning came as government borrowing costs in the UK, US, France and Japan hit their highest levels in decades, putting pressure on public finances. On 30-year UK bonds, the yield rose above 6% on Thursday, the highest since 1998. US 10-year yields reached 5.34%, the highest since 2002.
Analysts said there was no particular trigger for the move, but central banks around the world have been raising rates to fight inflation driven by soaring energy prices. When interest rates are high, investors tend to look elsewhere for returns, which is precisely what has driven money into AI firms building software and data centres.
Why it matters
This is unusual language for a central banker. The Bank of England does not routinely comment on individual sectors, and the governor choosing to do so while markets are pricing AI companies at extraordinary multiples is a signal about how closely the committee is watching the concentration of risk. If a correction arrives, it will land on portfolios and pension funds that now hold a great deal of technology exposure.
The deepfake point matters for British households directly. Bailey’s inability to trace fabricated images of himself circulating on X illustrates how thin the attribution layer currently is, and he has publicly called on the tech sector for help.
What happens next
The Monetary Policy Committee will decide interest rates with all of this in view. Bailey has said regulating AI is “not the right place to start”, so the immediate expectation is preparedness rather than new rules. Meanwhile the trajectory of bond yields and AI valuations into the next rate decision will test whether his warning was premature.
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