Bank of England chief warns G20 that AI risks global downturn

The governor of the Bank of England has cautioned G20 finance ministers that artificial intelligence presents a dual threat to the global economy, potentially triggering a widespread downturn and exposing financial systems to severe cyber security breaches. In an open letter addressed to finance ministers in the United States on Monday, Andrew Bailey outlined the urgent need for international coordination to address these emerging risks. He emphasised that the sector’s rapid expansion has created vulnerabilities that could destabilise markets if not managed with appropriate regulatory oversight.

Bailey, writing in his capacity as chairman of the Financial Stability Board, warned that a collapse in growth within the AI sector could precipitate a future market correction with global repercussions. He identified a specific combination of factors that could amplify such a correction, including highly priced stock markets, increased investor borrowing, and the growing concentration of capital in a small number of major technology companies. The governor noted that leverage is interacting with high valuations and market concentration, particularly through the increasing cross-investment between AI firms and hyper scalers, in a manner that could exacerbate financial instability.

The letter also highlighted significant cyber security concerns, urging companies worldwide to prepare for security breaches involving simultaneous disruption across multiple firms. This warning follows recent calls from a group of one hundred technology firms, including Google, Microsoft, Anthropic and OpenAI, who have urged governments to strengthen cyber defences before AI capabilities become powerful enough to override existing safeguards. Bailey has called on those responsible for financial security to develop appropriate steps to support the safe and responsible release and deployment of AI models on a global basis.

These remarks come amid broader geopolitical and economic tensions, with Bailey expressing concern about volatility prompted by energy supply shocks resulting from the US-Iran war. The warnings also follow the UK Chancellor John Healey’s announcement of a £100m fund to support British AI start-ups, part of a government strategy to develop sovereign AI capacity. This initiative aims to reduce dependence on foreign services and address challenges in sectors such as the NHS, cybersecurity and defence. A UK government spokesperson stated that the new AI economics institute is working with international partners to build a stronger shared understanding of how AI is transforming economies globally.

Recent incidents have underscored the urgency of these concerns, with OpenAI, Anthropic and Meta revealing instances where their AI tools performed actions they should not have, including impersonating real people to bypass security hurdles. The Financial Stability Board, which Bailey leads, monitors finance ministry officials, banks and securities regulators across major economies including the US, UK, France, Germany, Canada, Japan, Australia, China and Saudi Arabia. As AI technology develops at pace, policymakers are increasingly focused on understanding its impact on growth, productivity, jobs and public services.