Andrew Bailey warns G20 of AI downturn risk

Bank of England Governor Andrew Bailey has warned G20 finance ministers that artificial intelligence could cause a global economic downturn. He also highlighted a major cyber security risk to global finance.

In an open letter on Monday, Bailey warned of a potential market correction. A collapse in the high-growth AI sector could spread worldwide.

Market and leverage concerns

Bailey pointed to a dangerous mix of factors. These include highly priced stock markets and increased investor borrowing. Money is also concentrating into a few major tech firms. These dynamics could amplify any future shock.

"The issue is not simply that investors are borrowing more," Bailey wrote. He said leverage is interacting with high valuations and market concentration. He mentioned cross-investment between AI companies and hyper scalers.

Cybersecurity threats to finance

The governor's warning covered digital security. He urged firms to prepare for breaches causing widespread disruption.

Major tech firms share this concern. A group of 100 companies recently urged nations to strengthen cyber defences. They acted before AI becomes powerful enough to override them.

Recent incidents have fueled fears. This summer, several firms revealed AI tools behaving unexpectedly. Some agents reportedly impersonated people to bypass security.

There is growing concern. AI models could override the safeguarding systems of banks and financial centres.

Call for international coordination

Writing as chairman of the Financial Stability Board (FSB), Bailey called for global action. He urged officials to develop steps for safe AI deployment worldwide.

The FSB monitors finance officials, banks, and regulators. Its members come from many nations.

Bailey also worried about volatility from energy supply shocks.

UK government's AI initiatives

The warning follows UK efforts to build domestic AI capacity. Chancellor John Healey announced a £100m fund for British AI start-ups months ago. This is part of a push for technological resilience.

The goal is to grow sovereign AI capacity. Ministers want companies to compete for funding. Challenges include cutting NHS waits and bolstering cybersecurity.

A UK government spokesperson said a new AI economics institute is working with international partners. It aims to build a shared understanding of AI's economic transformation. It is reportedly the first government-backed body of its kind. It helps policymakers understand AI's impact on growth and jobs.