Published by Global Banking & Finance Review®
Posted on November 6, 2025
2 min readLast updated: January 21, 2026
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BoE's Andrew Bailey warns of an AI-induced market bubble despite potential productivity gains. Equity valuations, especially in tech, could be vulnerable.
LONDON (Reuters) -Bank of England Governor Andrew Bailey said on Thursday there could be an artificial intelligence-induced bubble in markets, notwithstanding the large productivity boost the technology would likely deliver.
Speaking after the central bank left interest rates on hold, Bailey said there was uncertainty around future AI returns, but not really about its potential.
"It is, of course, perfectly possible and perfectly consistent that AI could be the next big mover in terms of productivity," he said. "My own view personally is, I think, more likely than not, it probably is.
"But we've still got quite a way to go to actually sort of see that demonstrated. At the same time, we could have a bubble, because obviously the markets are pricing the future stream of returns from this, and that's uncertain. And so, you know, those two things are not inconsistent."
In the monetary policy report accompanying the interest rate decision, the central bank said equity valuations seemed to be stretched in a historical context, particularly for technology companies focused on AI.
That left equity markets exposed to a correction should expectations around the impact of AI become less optimistic, it said, stating that a resulting reduction in global demand could reduce inflationary pressures in Britain.
"Were that bubble to deflate or burst, that would represent a tightening in financial conditions that would weaken global demand, and that would have spillovers back to the UK," Deputy Governor Dave Ramsden said.
(Reporting by William Schomberg, David Milliken, Muvija M and Suban Abdulla, writing by Kate Holton, editing by Paul Sandle and Andy Bruce)
Artificial Intelligence (AI) refers to the simulation of human intelligence in machines that are programmed to think and learn like humans. It can enhance productivity and efficiency across various industries.
Equity valuations are assessments of a company's worth based on its stock price and market performance. They help investors determine whether a stock is overvalued or undervalued.
Monetary policy is the process by which a central bank manages the supply of money and interest rates to achieve specific economic objectives, such as controlling inflation and stabilizing the currency.
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