Andrew Bailey warns AI investment boom could bring market shocks

Bank of England governor Andrew Bailey warned in a BBC interview published on 1 October that the scale of investment in artificial intelligence could bring shocks to financial markets. Speaking about risks to the UK economy, he said the Bank was watching the money flowing into AI ‘very carefully’ and needed the financial system to withstand a possible correction in asset prices.

Asked whether an AI bubble could burst, Bailey told the BBC: ‘You could see some correction of asset prices at some point.’ He did not say a correction was certain or specify when one might occur. His warning concerns the consequences if investors’ high expectations for AI companies are disappointed.

Why Bailey is watching AI investment

Bailey described the amount being invested in AI as ‘large, very large’. He said that was natural for a major area of growth, but that rising share prices reflected high expectations of what the technology would deliver. ‘Everybody is currently priced to be a winner,’ he said, before cautioning that past technology shifts had not rewarded every company involved.

He used Netscape as an example of an early internet-era leader that did not survive. The point of the comparison was uncertainty about which businesses will succeed, rather than a prediction about any particular AI company. Bailey said the Bank was prepared for shocks to markets and had to make sure the financial system was resilient.

What the Bank’s September assessment found

The warning follows the Bank’s Financial Policy Committee record, published on 30 September after a meeting on 25 September. The committee said AI-related and semiconductor shares had fallen sharply in July. Some investors using borrowed money unwound positions, amplifying market moves, but trading remained orderly. It reported no spillover to core markets and no signs of broader systemic stress from that episode.

That assessment gives context to the Bank’s earlier warning about financial stability, covered in our report on the committee’s September findings. The new development is Bailey’s direct account of how heavy AI investment and high company valuations could expose markets to further shocks.

The committee said the risk of a sharper correction persisted. In its view, a significant change in expectations for AI companies’ earnings, including doubts about how quickly the technology develops or is adopted, could cause a sharper repricing. That is a possible route to financial stress, not a finding that a wider market crisis has occurred.

How AI borrowing could spread the risk

The committee also warned that more AI investment was being financed through debt, broadening the range of investors and funding markets exposed to developments in the sector. Citing an estimate from Morgan Stanley, it said global AI-related debt issuance had reached about $450 billion by early September, more than twice the amount issued during all of 2025. The figure is an analyst estimate cited by the Bank, rather than a final annual total.

The record also cited J.P. Morgan analysts’ estimate that debt-financed AI capital spending could total about $4.1 trillion between 2026 and 2030. The committee said increasing indebtedness, limited visibility into some financing and, at times, ‘circular arrangements’ could make risks harder to assess and increase losses if expectations prove too optimistic.

The exposure could extend beyond AI shares. According to the committee, forecasts for growth and public finances partly rely on AI producing substantial productivity gains. If those expectations are reassessed, it said, the effects could reach sovereign debt markets as well as AI-related asset prices. The committee described a risk to monitor, without predicting that such a reassessment will occur.

Cyber risks and what the Bank says comes next

Bailey identified cyber attacks as another concern. He told the BBC that AI can uncover software vulnerabilities more powerfully and could become a potent tool in the wrong hands. The Financial Policy Committee separately said recent tests of advanced AI systems had shown that autonomous models could take unexpected actions when safeguards were permissive or weakened, reinforcing its call for firms to prepare for cyber and operational risks.

Bailey also discussed realistic fake images. He said the Bank had struggled to trace the origin of images depicting him and Nigel Farage in a physical fight that were promoted on X in June. He called for help from technology companies in tracing such material. On the benefits side, he said AI could speed up work supporting the Monetary Policy Committee, while leaving interest-rate decisions to policymakers.

For financial markets, the Bank’s published record calls for careful management of interconnected risks as AI financing grows. It says the July share-price fall did not spread into core markets, but that high valuations, investor borrowing and growing debt issuance leave a sharper correction possible. Neither the record nor Bailey’s interview establishes when a further shock might come or how severe it would be.