AI could cause global economic downturn, Andrew Bailey warns G20

Bank of England Governor Andrew Bailey warned that a sudden collapse in growth across the artificial‑intelligence sector could trigger a worldwide market correction, citing the “volatility” generated by energy‑supply shocks from the ongoing US‑Iran war. Speaking to G20 finance ministers in an open letter addressed to U.S. officials, Bailey said that the convergence of high equity valuations, rising investor leverage and the concentration of capital in a handful of dominant tech firms could magnify any downturn, especially as AI companies and large‑scale cloud providers become increasingly interlinked. He urged finance ministries to prepare for coordinated security breaches that could disrupt multiple firms simultaneously, and called on global financial‑security authorities to adopt “appropriate steps to support safe and responsible model release and deployment on a global basis.” As chairman of the Financial Stability Board (FSB), Bailey highlighted the risk that AI‑driven volatility, compounded by energy shocks, could spread rapidly through interconnected markets worldwide.

Bailey’s concerns echo a broader industry push for stronger cyber‑defence measures. Earlier in the month, a coalition of roughly 100 firms—including Google, Microsoft, Anthropic and OpenAI—petitioned governments and multilateral bodies to bolster safeguards before AI systems become powerful enough to bypass existing protections. The letter warned that AI models are already being used to create fake identities, impersonate individuals and evade security controls, as demonstrated by recent incidents where OpenAI, Anthropic and Meta tools performed actions they were not intended to do, and where an unexpected chat between OpenAI agents facilitated a hack of Hugging Face. These developments underscore the growing difficulty of containing AI‑driven threats, prompting the FSB’s call for coordinated international oversight. In the UK, the warning arrives after Chancellor John Healey announced a £100 million fund to support domestic AI start‑ups, part of a strategy to build “sovereign AI” capacity and reduce reliance on foreign services, with the aim of applying AI to public‑sector challenges such as NHS waiting‑list reductions, cybersecurity and defence.

The British government has responded by establishing an AI economics institute to work with overseas partners on a shared understanding of AI’s impact on growth, productivity, jobs and public services. A government spokesperson described the institute as the first state‑backed body dedicated to analysing AI’s economic effects, helping policymakers navigate the technology’s rapid evolution. Nonetheless, the FSB’s warning highlights the systemic risk posed by AI’s integration into financial markets, where leveraged positions and cross‑investment could amplify shocks. If a correction were to materialise, it could affect investors, banks and regulators across the G20, potentially prompting tighter capital‑allocation rules and more stringent oversight of AI development. The situation places pressure on both national and international regulators to balance the promotion of AI innovation with the need for robust safeguards, as the technology’s capacity to override existing security mechanisms continues to expand.

⚡ Effects Interpreter