Financial stability at risk from artificial intelligence - Bank of England says

The UK financial system is at increased risk from artificial intelligence (AI), the Bank of England has said.

Among the threats posed by AI are a potential stock market bubble, heightened cybersecurity vulnerabilities and AI companies' increasingly complex and opaque debt, the UK central bank said in its twice-yearly financial stability report.

The Bank's Financial Policy Committee also questioned the basis for the anticipated economic benefits of using AI, saying there is "uncertainty over the scale and timing of future productivity gains" and companies' ability to make money from AI.

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It added that AI has the potential to increase productivity "across a range of sectors", and support long-term economic growth and developments in AI have already supported growth in some regions.

Advanced AI models are "increasingly capable" of launching cyberattacks at greater scale due to "rapid progress" in cutting-edge AI since the last financial stability report was published in December.

This progress presents a "significant increase" in the risks to financial stability and requires firms and authorities to revisit whether the resilience of key technology providers is sufficient.

A tech bubble?

The valuations of AI companies are based on earnings forecasts, which are "highly uncertain", the report continued.

Some of the world's most valuable companies, like chipmaker Nvidia, have seen their share prices soar as they invest in AI or benefit from AI demand.

Those valuations "have also become more stretched" with the rise partly driven by "a narrow set of AI-related companies, increasing market concentration in some global indices", the biannual report said.

Borrowing by such companies has increased rapidly, leading to a pace of investment that is "unprecedented historically".

That could pose a risk to financial stability too due to "increasing complexity and opacity in debt structures".

Iran war threats

The report highlights a series of pressures, including uncertainty about energy prices and interest rates after the war in Iran.

During the conflict, oil and gas prices rose sharply from fossil fuel supply disruption and infrastructure damage.

But "substantial uncertainty remains", the Bank said, as energy prices and interest rate markets "have remained volatile".

Since the last report, the Bank said, the likelihood of other vulnerabilities "crystallising at the same time has increased", "potentially amplifying their combined impacts on financial stability".

The Financial Policy Committee exists to ensure the UK financial system can handle economic shocks and risks.

It concluded the financial system has remained resilient and continued to support the UK economy.

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