AI boom could trigger market shocks, Bank of England boss warns

**AI boom could trigger market shocks, Bank of England boss warns**

Artificial intelligence (AI) could set off shocks in financial markets, and the UK must be ready for them, the governor of the Bank of England has warned.

Andrew Bailey said the central bank is monitoring the vast sums being poured into AI “very carefully” and cautioned that “not everybody always wins”.

The money invested in and lent to AI companies over recent years, in the expectation of big returns, has led markets to value some of them as multi-trillion dollar businesses.

When asked whether he thought an AI bubble could burst, Bailey said: “You could see some correction of asset prices at some point.”

Bailey said he believed the technology has “great potential to strengthen growth in our economies”, adding that this was something the country needed.

“But it also brings with it substantial risks and so we have to be on top of both of those.”

One risk is what happens if the major bets on AI fail to deliver.

AI chipmaker Nvidia is now the world’s most valuable listed company, with a market valuation of $5.5tn (£4.14tn), largely because investors believe AI could generate huge profits.

At the same time, tech giants Alphabet, Meta, Microsoft and Amazon are spending hundreds of billions of dollars on the technology.

And two of the biggest AI firms in the world – Anthropic and OpenAI – are also getting ready to sell shares in their companies on the US stock market in moves that many think will bring hundreds of billions of dollars more into the sector.

“There is a large, very large, amount of investment going into this sector now, and of course that's natural because it's a major area of growth,” said Bailey.

“And of course you see that the asset prices of the companies that are developing it have gone up a lot and that reflects the fact that there are high expectations of what it can deliver.”

“Everybody is currently priced to be a winner,” he added, but warned that “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. So not everybody always wins.

“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.”

Bailey also highlighted other AI-related dangers, including its use in cyber attacks.

He said AI has created a “much more powerful way of uncovering vulnerabilities”.

“It’s revealing things that have been in bits of operating software that we've had, and all of us have had.”

“In the wrong hands... it's a very powerful, potentially very powerful, weapon,” he added.

Another danger is the growth of deepfakes – AI-generated images and videos of people that appear real – which can be used to deceive the public.

Bailey has seen this at first hand. In June, deepfake images showing him and Nigel Farage in a physical fight were circulated on social media platform X.

He told the BBC that the fake images were being produced in such a way that the Bank has struggled to work out 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.

However, Bailey said a major possible advantage of AI is its ability to “speed up the work that supports the Monetary Policy Committee [MPC]” 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.