Bank of England Governor Andrew Bailey warned that massive financial bets on artificial intelligence (AI) could crash stock markets when tech investments fail to yield expected profits.
Speaking to the BBC, Bailey stated that central bank officials are tracking massive investments flowing into AI companies, warning that current market prices wrongly assume every firm will succeed.
The warning coincides with sharp drops in global government bond prices, pushing UK 30-year borrowing costs to 6%, their highest point since 1998, as investors shift cash into tech stocks.
US tech giants including Alphabet, Meta, Microsoft, and Amazon are spending hundreds of billions of dollars on AI development, while chipmaker Nvidia reached a market valuation of $5.5tn (£4.14tn).
How market speculation threatens economic stability
Investors are pouring money into AI firms in hope of massive financial returns, driving company valuations to multi-trillion dollar levels.
Bailey noted that internet search pioneer Netscape collapsed after initial success before Google dominated the market, proving that early industry leaders often fail.
AI firms Anthropic and OpenAI are preparing to list shares on US stock markets, a step that will attract hundreds of billions of dollars more from investors.
The central bank governor stated that financial authorities are building safeguards to ensure the banking system withstands sudden falls in company share values.
What readers should know about corporate AI risks
Criminals are using advanced AI tools to scan software code and discover hidden security flaws, turning the technology into a weapon for cyber attacks.
Bad actors are also using fake AI-generated images and videos, known as deepfakes, to deceive members of the public across digital platforms.
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In June, fake social media pictures showed Bailey in a physical fight with politician Nigel Farage, but central bank investigators could not trace the origin of the image.
Bailey stated that technology companies must help financial regulators track down the creators of deceptive digital media content.
How borrowing costs hit record high levels
Government borrowing costs in Britain, the US, France, and Japan rose to multi-decade highs as central banks kept interest rates elevated to combat inflation.
The yield on US 10-year government bonds reached 5.34%, marking its highest level since 2002 as global investors sold off public debt.
Central banks raised baseline interest rates after energy costs soared, making government bonds less attractive compared to high-growth tech investments.
Despite financial market dangers, the Bank of England uses AI tools to process data faster and support officials who set UK interest rates.
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