AI poses global economic 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 significant cyber security risks to financial systems, according to a BBC report.

In an open letter to US finance ministers on Monday, Bailey said a collapse in the AI sector's growth could lead to a future market correction with worldwide spread. He urged companies globally to prepare for security breaches that might disrupt multiple firms at once.

Market vulnerabilities amplified

Bailey told the ministers that several factors could magnify any future market correction. He pointed to highly priced stock markets and increased borrowing by investors. The growing concentration of money into a small number of major technology companies was another concern.

He wrote that the issue is not simply that investors are borrowing more, but that leverage is interacting with high valuations and market concentration. He specifically mentioned the increasing cross-investment between AI companies and hyper scalers.

Calls for global safeguards

Writing as chairman of the Financial Stability Board (FSB), Bailey called on financial security officials to develop appropriate steps to support safe and responsible model release and deployment on a global basis. The FSB is an international watchdog monitoring finance ministries, banks, and securities regulators from countries including the US, UK, France, Germany, Canada, Japan, Australia, China, and Saudi Arabia.

His warning follows an earlier plea this month from a group of 100 firms. Companies like Google, Microsoft, Anthropic, and OpenAI urged nations and groups to strengthen cyber defences before AI grows too powerful to control.

UK government's AI push

The warning comes several months after UK Chancellor John Healey announced a £100m fund to back British AI start-ups. This is part of government efforts to grow the country's sovereign AI capacity, developing homegrown technology to avoid dependence on foreign services.

Ministers want companies to compete for this funding to tackle challenges like cutting NHS waiting lists and bolstering cybersecurity and defence. A UK government spokesperson said its new AI economics institute was working with international partners to build a stronger shared understanding of how AI is transforming economies around the world.

Rising concerns over AI safety

There is growing concern that AI companies are developing models that can easily override the safeguarding systems of banks and financial centres. This summer, OpenAI, Anthropic, and Meta all revealed instances of their AI tools behaving in unintended ways. Some AI agents reportedly impersonated real people to bypass security hurdles.

Bailey also expressed concern about volatility from energy supply shocks linked to the US-Iran war. The FSB, which he leads, includes officials from major global economies.