Bank of England: AI boom risks ‘sharper’ market correction
AI-related debt issuance has more than doubled in a year to around $450bn, the Bank said, as it also pointed to growing cyber and operational risks from the technology.
The Bank of England’s Financial Policy Committee (FPC) said the risk of a sharper correction in AI company valuations persists, warning that rapidly rising AI-related borrowing is spreading exposure to the sector across investors and funding markets.
The warning is set out in the record of the FPC’s meeting on 25 September, published by the Bank on 30 September. The committee said the likelihood of interconnected vulnerabilities in the financial system crystallising together has risen since its previous meeting in July, pointing to a re-escalation of conflict in the Middle East, higher sovereign bond yields and growing exposure to AI financing.
“Equity valuations for AI companies fell sharply in July. The scale of the adjustment was amplified by an unwinding of stretched positions and associated deleveraging activity,” the FPC said. “The risk of a sharper correction persists, notably if there is a more significant shock to earnings expectations reflecting concerns around the pace of AI development or adoption.”
As of early September, Morgan Stanley estimated that global AI-related debt issuance totalled around $450bn, more than double the total issuance in all of 2025, the committee said, adding that global issuance this year is expected to exceed the annual output of countries such as the UK.
The committee also pointed to operational and cyber risks from the technology itself. “Recent frontier AI test-environment incidents, where autonomous models have taken unexpected actions, reinforce the FPC’s calls for firms to prepare for AI-related cyber and operational risks,” the record said.
Despite the warnings, the FPC kept the UK countercyclical capital buffer (CCyB) rate unchanged at its neutral setting of 2%. “Maintaining a neutral setting of the UK CCyB in the region of 2% helps to ensure that banks continue to have capacity to absorb unexpected future shocks,” the committee said.
The FPC’s record was published a day before Bank of England governor Andrew Bailey discussed the risks from an AI boom in a broadcast interview, after cautioning in a letter to G20 finance ministers and central bank governors that leverage in bond and equity markets was interacting with high valuations and market concentration in ways that could amplify a future correction.