Bank of England warns AI advances are raising stability risks

Rapid advances in AI are adding to financial stability risks, with the Bank of England warning of growing cyber and operational vulnerabilities. Its latest Financial Stability Report found risks to stability have increased in 2026, while stressing that UK lenders and consumers remain resilient.

The Bank said frontier AI models are increasingly capable of exploiting software vulnerabilities, potentially raising the sophistication and impact of cyber attacks on firms, banks and market infrastructure. It also pointed to more pronounced vulnerabilities in risky assets and private credit, with Middle East conflict adding uncertainty to the global economy and increasing the chance that several pressures crystallise at once.

AI share prices have climbed as investor demand and positive earnings news have boosted the sector, but the Financial Policy Committee said valuations have become more stretched. A hypothetical fall in AI stocks could trigger a sharp equity-market correction, particularly in the US, with spillovers that could hit UK GDP by as much as 2.2 percentage points.

The Bank also proposed loosening part of the post-crisis capital regime for lenders. A new capital buffer framework would reduce leverage requirements on large domestic-focused UK banks by around 20 basis points (0.2 percentage points), though the impact would vary by bank, with a consultation expected to conclude next year.