Bank of England Chief Warns AI Boom Could Trigger Market Shocks

Bank of England Governor Andrew Bailey has warned that artificial intelligence could trigger shocks in financial markets and said the central bank is watching the flood of money into the sector "very carefully."

In an exclusive interview with the BBC on the risks and benefits of AI for the UK economy, Bailey cautioned that "not everybody always wins" — even as markets value leading AI companies as multi-trillion dollar businesses.

Asked directly whether he believed an AI bubble could burst, Bailey did not dismiss the possibility. "You could see some correction of asset prices at some point," he said.

The warning comes as capital pours into the industry at a pace few sectors have ever seen. AI chipmaker Nvidia is currently the world's most valuable listed company, with a market valuation of $5.5tn (£4.14tn), driven largely by investor belief in the profits AI could generate.

Tech giants Alphabet, Meta, Microsoft and Amazon are spending hundreds of billions of dollars on the technology. Two of the largest AI companies in the world — Anthropic and OpenAI — are preparing to sell shares on the US stock market, in moves many believe will channel hundreds of billions of dollars more into the industry.

Bailey framed the investment surge as understandable, but risky. "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," he said. "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."

He pointed to the market's assumption that every major player will succeed. "Everybody is currently priced to be a winner," Bailey said. History, he argued, says otherwise.

"You look back at the past, not everybody is a winner," he said. "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."

Preparing for shocks

The governor made clear the Bank is not waiting for a correction to act. "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," he said.

Bailey struck a deliberately double-sided view of the technology. He said AI has "great potential to strengthen growth in our economies" — something he believes the UK needs. "But it also brings with it substantial risks and so we have to be on top of both of those," he added.

Cyber attacks and deepfakes

Beyond market valuations, Bailey flagged security threats. AI has created a "much more powerful way of uncovering vulnerabilities," he said, exposing flaws that have long sat unnoticed in widely used software.

"It's revealing things that have been in bits of operating software that we've had, and all of us have had," he said. "In the wrong hands... it's a very powerful, potentially very powerful, weapon."

He also warned about deepfakes — AI-generated images and videos of people that look real — and their potential to fool the public. Bailey has had first-hand experience: in June, deepfake images depicting him and Nigel Farage having a physical fight were promoted on social media platform X.

The Bank, he told the BBC, has struggled to trace where those images 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.

A tool for the MPC

Bailey also identified a concrete benefit for the Bank itself: AI can speed up the analytical work that supports the Monetary Policy Committee, which sets UK interest rates. He was explicit about its limits.

"It's not taking a decision, but it's a tool in the hands of the policy maker and that's good," he said.

With Anthropic and OpenAI moving toward public listings and the largest technology companies committing capital at unprecedented scale, Bailey's message sets the terms for how the UK's central bank intends to manage an AI-driven cycle — capturing the growth while preparing the financial system for the corrections he considers likely.