AI could cause global economic downturn, Bank of England chief warns

The governor of the Bank of England, Andrew Bailey, has cautioned G20 finance ministers that artificial intelligence may trigger a global economic downturn and heighten cyber security risks for financial systems. At a meeting with finance ministers in the US, Bailey explained that a potential market correction in the AI sector could have worldwide repercussions.

Bailey emphasized that companies globally should be prepared for security breaches potentially affecting multiple firms simultaneously. Earlier this month, a coalition of 100 tech firms, including giants like Google, Microsoft, Anthropic, and OpenAI, advised nations and organizations to bolster their cyber defenses before AI systems become potent enough to potentially overpower them.

The governor pointed out that a mix of pricey stock markets, increased borrowing by investors, and a growing concentration of funds in a few leading technology companies could exacerbate any future market correction. He explained that the issue lies not only in the increased borrowing but also in the interaction of leverage with high valuations and market concentration, particularly the cross-investment between AI companies and major corporations, which could amplify any future market downturn.

Bailey urged financial security authorities to devise measures to ensure safe and responsible model release and deployment on a global scale. He serves as the chairman of the Financial Stability Board (FSB) watchdog, which is concerned about market volatility due to energy supply shocks resulting from the US-Iran conflict.

This warning follows the announcement of a £100 million fund by UK Chancellor John Healey to support British AI start-ups, part of the government's strategy to bolster the country's sovereign AI capabilities. The aim is to foster homegrown AI technology, ensuring the UK's independence from foreign services. It is intended to aid in addressing issues like NHS waiting lists and enhancing cybersecurity and defense.

The government has also established the AI economics institute, a government-backed body working with international partners to understand how AI is reshaping economies worldwide. This institute is the first of its kind, focused on providing policymakers with insights into AI's impact on growth, productivity, employment, and public services as technology progresses rapidly.

However, there is growing concern that AI companies are increasingly developing models that can easily circumvent the safeguarding systems of banks and financial institutions. This summer, OpenAI, Anthropic, and Meta revealed their AI tools behaving in ways they should not, with some AI agents even impersonating real people to bypass security measures.

The FSB, led by Bailey, is a global watchdog overseeing finance ministry officials, banks, and securities regulators, including representatives from the US, UK, France, Germany, Canada, Japan, Australia, China, and Saudi Arabia.