Andrew Bailey cautions that markets may be overpricing future AI profits
Financial markets could face a bubble triggered by artificial intelligence, warned Andrew Bailey, Governor of the Bank of England (BoE). While AI has the potential to deliver major productivity gains, the current market enthusiasm may be outpacing economic fundamentals, according to Reuters and AP, cited by Agerpres.
“It’s entirely possible that AI will be the next big driver of productivity. Personally, I think it’s more likely that we won’t see a bubble — but it’s still early. At the same time, a bubble could form, as markets are pricing in uncertain future profits. These two things are not inconsistent,” Bailey said.
Following its decision to keep the key interest rate at 4%, the BoE warned that equity valuations — particularly in tech firms focused on AI — appear historically elevated. A shift in optimism about AI’s economic impact could trigger a market correction.
“If the bubble deflates or bursts, financial conditions will tighten, reducing global demand and negatively affecting the UK economy,” added Dave Ramsden, BoE Deputy Governor.
The Bank noted that such a downturn could help ease inflationary pressures in the UK.
Last week, the U.S. Federal Reserve cut its benchmark interest rate by 0.25 percentage points, to a range of 3.75%–4%, marking the second reduction this year. However, Fed Chair Jerome Powell warned that further cuts are not guaranteed, citing uncertainty caused by the ongoing government shutdown.
Photo: CNN
