BoE Warns of AI-Driven Bubble Risk Amid Productivity Concerns (GB: Bank of England)

The Bank of England Governor Andrew Bailey warned of a potential stock market bubble if AI-driven productivity gains fail to materialize, citing “fear of missing out” and record valuations for AI companies. He cautioned that trillions in debt financing and deep interconnections among AI firms could amplify stability risks in the event of a price correction. Bailey noted recent AI-driven sell-offs, with software and tech stocks particularly hit. While he remains optimistic about AI’s potential to lift productivity, he emphasized the uncertainty in job displacement and the need for realistic expectations. His remarks echoed the European Central Bank’s caution in its latest Financial Stability Review, which highlighted elevated vulnerabilities in AI valuations. Other concerns included geopolitical tensions, trade disruptions, and aging populations depressing growth and fiscal positions in advanced economies.