The Bank of England (BoE) has cautioned about a potential sharp correction in global financial markets, particularly in technology stocks, fuelled by enthusiasm for artificial intelligence (AI). The Financial Policy Committee (FPC) noted that equity prices in the U.S. stock markets have reached levels comparable to those seen during the dotcom bubble. They also highlighted the vulnerability of U.S. government bonds to any decline in the credibility of the Federal Reserve.
The BoE's FPC, chaired by Governor Andrew Bailey, expressed concerns that increasingly autonomous AI programs could manipulate markets to boost profits, potentially triggering or amplifying significant shifts in bond prices or stock markets. The central bank is monitoring the use of AI in finance, including banks and hedge funds, amid worries the technology could lead to market crashes or manipulation without human awareness. The FPC suggests AI could transform the UK economy, enhancing decision-making and tailoring products; however, uncertainties surrounding AI's rapid development could pose financial stability risks.
Governor Bailey has advocated for a pragmatic approach to AI applications, stressing the importance of actively seeking solutions to potential risks and fostering a supportive environment for investment in AI and other long-term projects. The BoE aims to strike a balance between encouraging technological advancement and safeguarding economic stability.
