Artificial intelligence could cause global economic downturn, Bank of England governor warns

Artificial intelligence could cause a worldwide economic downturn, the governor of the Bank of England has warned.

Andrew Bailey wrote in a letter to the G20 finance ministers - meeting in North Carolina in the US - that a "future market correction" could have global effects should the value of AI companies plummet.

It's the latest warning on the risk posed to global finance by AI, with the Bank of England officially raising concerns over the technology in July.

In its twice-yearly financial stability report, the UK's central bank said AI poses threats of a potential stock market bubble, heightened cybersecurity vulnerabilities, and companies' increasingly complex and opaque debt.

Writing as chairman of the international watchdog the Financial Stability Board, Mr Bailey said in his letter that "markets remain vulnerable to a potentially disorderly correction that could spread across borders, particularly given fragilities in sovereign debt markets".

"The issue is not simply that investors are borrowing more", he added, "but that leverage is interacting with high valuations and market concentration, in particular the increasing cross-investment between artificial intelligence companies and hyperscalers, in a way that could amplify a future market correction.

"I remain concerned, therefore, that a large shock or combination of shocks could concurrently trigger multiple vulnerabilities."

Financial bodies have sounded the alarm during the past year over the sky-high valuations of companies such as OpenAI, Anthropic, and Nvidia, suggesting the companies are in a "bubble".

The term refers to a phenomenon where stock prices rise rapidly above what would be considered their true value - like the 1990s dot-com bubble or the 2000s US housing crisis - before crashing back, causing mass investor losses and economic contractions.

The US housing bubble was widely identified as a main cause of the 2008 financial crisis, which sent the UK and many other Western countries into recession.

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AI companies worth billions - one worth trillions

It comes after stock market results showed that Nvidia is now the world's most valuable company, valued at $5.1trn (£3.8trn), last week.

The company provides chips that power AI systems such as OpenAI's ChatGPT and Google's Gemini, as well as the UK's most powerful supercomputer.

It comprises more than 7% of the entire S&P 500, a major US stock index made up of companies relied on for stability and profitability.

Meanwhile, OpenAI was valued at $852 billion (£629.12bn) in March, with CEO Sam Altman seeking a valuation of at least $1trn (£738bn) by the time the company goes public in 2027.

It was backed by billions in investments from Nvidia, Amazon and SoftBank in March.

Anthropic - behind the AI large language model Claude - was also valued at $965bn (£712.56bn) after a private funding round in May.

In its financial stability report last month, the Bank of England said the valuations of AI companies are based on earnings forecasts, which are "highly uncertain".

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