Bank of England flags risk of sharper AI market correction

The Bank of England warned that valuations in the multi-trillion dollar AI sector remain vulnerable to a “sharper correction” than the market shock seen in July. Its quarterly financial stability record said a sudden crash could have broad consequences for global economic growth and sovereign bond yields, with policymakers pointing to rising interconnected risks across the financial system.

Growth expectations are now partly tied to anticipated AI-driven productivity gains, leaving wider asset prices exposed if those assumptions are revised. Recent equity market volatility has already disrupted corporate plans, including delayed initial public offerings by companies such as smart ring maker Oura.

Governor Andrew Bailey said AI has significant implications for financial stability, especially around cyber threats, but cautioned against premature regulation. A record number of participants in the Bank’s twice-yearly systemic risk survey cited AI-related risks, while the Financial Policy Committee also flagged vulnerabilities in private credit, high sovereign bond yields and the possible “re-escalation of the conflict in the Middle East.”