LONDON — The governor of the Bank of England has warned G20 finance ministers that artificial intelligence could help trigger a global economic downturn and create serious cyber security risks for financial systems.
Andrew Bailey said a sharp collapse in growth across the AI sector could lead to a future market correction that would not stay contained in one country. In a letter sent to finance ministers in the US, he urged companies to prepare for security breaches that could involve disruption at several firms at once.
His warning came as concern grows about the speed of AI development and the scale of money flowing into the sector. Bailey said the combination of high stock market valuations, more investor borrowing and rising concentration in a small number of major technology firms could make any downturn worse.
Bailey warns of concentrated risk in AI-linked markets
Writing in his role as chairman of the Financial Stability Board, Bailey said the issue was not simply that investors were taking on more leverage. He argued that leverage was interacting with high valuations and market concentration in a way that could amplify a future correction.
He specifically pointed to increasing cross-investment between AI companies and large cloud providers, often described as hyperscalers. In his view, that structure could leave markets more exposed if confidence in the sector weakens.
Bailey called on those responsible for financial stability to take appropriate steps to support safe and responsible model release and deployment on a global basis. The FSB brings together officials from major economies including the UK and US to monitor risks across the financial system.
Cyber security warnings come as firms race to strengthen defences
The Bank governor also highlighted the cyber security side of the threat. He said companies should prepare for breaches involving simultaneous disruption across multiple firms, suggesting that a single incident could spread much more widely than a traditional attack.
Earlier this month, 100 companies including Google, Microsoft, Anthropic and OpenAI urged governments and international groups to strengthen cyber defences before AI becomes powerful enough to override them. Their warning added to growing fears that financial institutions could face systems designed to bypass safeguards.
This summer, OpenAI, Anthropic and Meta all disclosed problems with their own tools, including instances where AI agents behaved in ways they should not. In some cases, the systems reportedly impersonated real people to get past security checks.
UK AI strategy continues alongside warnings over instability
Bailey’s warning follows the UK government’s push to build more domestic AI capability. Several months ago, Chancellor John Healey announced a £100m fund to back British AI start-ups as part of wider efforts to expand the country’s sovereign AI capacity.
Ministers want firms to compete for the money to help with public services and national resilience, including cutting NHS waiting lists and strengthening cyber security and defence. The aim is to make the UK less dependent on overseas AI services.
A government spokesperson said a new AI economics institute was working with international partners to build a stronger shared understanding of how AI is changing economies around the world. The spokesperson said it was the first government-backed body of its kind focused on AI’s economic impact, with attention on growth, productivity, jobs and public services.
Energy shocks and geopolitics add to market volatility
Bailey also expressed concern about volatility linked to energy supply shocks caused by the US-Iran war. He said such shocks can feed uncertainty in wider markets at the same time as investors are already exposed to fast-changing AI valuations.
The Financial Stability Board, which Bailey leads, monitors threats to the global financial system rather than setting monetary policy. Its membership includes officials from the UK, US, France, Germany, Canada, Japan, Australia, China and Saudi Arabia.
That makes Bailey’s warning notable beyond the AI sector itself. His message to the G20 was that the risks are not limited to technology companies, but could spill into banks, investors and market infrastructure if confidence in the sector shifts suddenly.
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