Andrew Bailey warns on AI: ‘Everybody is currently priced to be a winner’

Bank of England governor Andrew Bailey has suggested that the UK’s growth hopes hinge on productivity gains from a mass AI technology roll-out although he warned that investment levels carried “substantial risks” for market prices. 

Bailey, who is also the head of the Financial Stability Board, an international body overseeing markets, echoed deputy governor Sarah Breeden in warning about rising equity prices, particularly in the US. 

He said the UK’s lack of growth was a “critical” question for the country yet added that when it comes to AI investors could get valuation assumptions “wrong in a number of ways”. 

“They could overvalue the whole thing,” Bailey said. 

“Everybody is currently priced to be a winner. You look back at history, everybody normally isn’t a winner.”

US and other international markets have generally managed to survive a collapse caused by the Iran war, prompting top economists and financial policymakers to warn of a potential bubble effect. 

Stock prices across the pond have risen since March, driven by high earnings results posted by the likes of Nvidia and contrasting slumps seen across bond markets. 

Breeden told the BBC that fears over private credit markets and highly-valued AI stocks pointed to “a lot of risk”. 

She said she expected “an adjustment at some point”, leaving City analysts on alert. Bailey said he was not surprised by his deputy’s comments. 

The Bank chief also cautioned that AI technology was on an “exponential” phase of development, citing Anthropic’s Mythos model, which appears to be able to identify flaws in cyber systems which humans are unable to find. 

“We are all facing a large amount of patching at the moment, Bailey said. “That’s a big thing.”

Praising the AI Security Institute, Bailey said the UK was a “world leader” in assessing technology risks. 

Bailey insists on financial stability

Appearing before a Lords committee for economic affairs, Bailey called for the current monetary policy framework to be maintained despite the fact the Bank is projected to fail to hit the two per cent inflation target rate in most years across the current decade. 

“We have to focus more on how ​we manage the path back to target, and … ultimately get there because we’ve got to give ​the public confidence that the target ​is for real.”

He also warned Chancellor Rachel Reeves against using financial deregulation as a lever for higher growth. 

“We won’t get growth if we don’t have financial stability,” he said. 

Bailey also warned Reeves against overseeing a rise in public debt levels in order to reduce the vulnerability of public finances to any coming economic shocks.