Andrew Bailey has warned of \u201ccomplacency\u201d in financial markets after claiming AI\u2019s productivity boom could fail to deliver.<\/p>\n
The Governor of the Bank of England sounded the alarm over a potential stock market bubble on Sunday, warning that \u201cexpectations of AI-driven productivity gains could be disappointed\u201d.<\/p>\n
This could have damaging consequences for the global economy after investors have piled trillions of dollars into AI companies, largely in the hope that the technology will unleash a global productivity boom.<\/p>\n
He said: \u201cWe have seen evidence of fear of missing out, backed by arguments along the lines of, \u2018This time is different, for instance, because of the expected productivity benefits of AI.\u2019\u201d<\/p>\n
He said this has raised the risk \u201cof some complacency in financial markets\u201d.<\/p>\n
\u201cI am an optimist on the potential for AI and robotics to move the dial on productivity, and thus economic growth,\u201d he said. \u201cBut I like to think I am a realistic optimist.<\/p>\n
\u201cMy impression is that we have made more progress so far applying AI to well-defined task-based work rather than more ambitious goals, which I don\u2019t find surprising.\u201d<\/p>\n
It comes after a week of turmoil on stock markets prompted by fears about the impact of AI.<\/p>\n
Many tech companies were hammered by a global sell-off, with software stocks hit particularly hard over concerns their business models will be upended by AI.<\/p>\n
Speaking at a conference in Saudi Arabia, the Bank\u2019s chief said the threat from a potential AI bubble is just one of several facing the global economy.<\/p>\n
He also warned about increased geopolitical tensions, further disruption to global trade and growing debt pressures.<\/p>\n
Mr Bailey\u2019s warning about AI echoes concerns raised by the European Central Bank.<\/p>\n
In its most recent Financial Stability Review, the bank warned that record stock valuations for AI companies could \u201creflect fears of missing out on a continued rally\u201d rather than what the companies can deliver.<\/p>\n
It added: \u201cCurrent market pricing does not appear to reflect persistently elevated vulnerabilities and uncertainties.\u201d<\/p>\n
The Bank of England also warned in December that valuations were \u201cparticularly stretched\u201d for companies focused on AI, which has been bankrolled by trillions of dollars in debt.<\/p>\n
\u201cDeeper links between AI firms and credit markets, and increasing interconnections between those firms, mean that, should an asset price correction occur, losses on lending could increase financial stability risks,\u201d it said.<\/p>\n
Mr Bailey\u2019s warning about AI clashes with recent comments made by Kevin Warsh, who has been nominated by Donald Trump to replace Jay Powell as the chair of the Federal Reserve.<\/p>\n<\/p><\/div>\n
Mr Warsh recently argued that AI will trigger \u201cthe most productivity-enhancing wave of our lifetimes \u2013 past, present and future\u201d.<\/p>\n
He added that he expected a \u201cproductivity wave\u201d to happen first in the United States, leaving the country with a stronger workforce and greater prosperity.<\/p>\n
Such a revolution has prompted concerns of widespread job losses as robots increasingly replace humans.<\/p>\n
Mr Bailey said on Sunday that AI is likely to replace jobs in some sectors while also creating some in others, but added that the outcome \u201cis as yet highly uncertain\u201d.<\/p>\n
While using his speech to address AI on Sunday, Mr Bailey also said that \u201cmarket conditions could have been much worse given the backdrop\u201d.<\/p>\n
Not only is this thanks to the recent flood of investment in technology stocks, he said, but he also suggested markets have grown accustomed to Donald Trump\u2019s tendency to row back on threats to global trade.<\/p>\n
Most recently, he abandoned plans to impose tariffs on the UK and its European allies as part of his attempts to seize Greenland.<\/p>\n
This fed into the idea of the US President\u2019s \u201cTaco\u201d trade, an acronym of \u201cTrump always chickens out\u201d.<\/p>\n
Mr Bailey said: \u201cMarkets have become cautious in their reactions since not all of the initial announcements of policy shifts have been followed through to the word.<\/p>\n
\u201cAnd on occasions, the impact of the announcement on economies and financial markets has not been as initially predicted.\u201d<\/p>\n
Elsewhere, the Governor also raised concerns about the impact of ageing populations and lower birth rates in advanced economies, which he believed were still not properly understood.<\/p>\n
\u201cThis creates lower economic growth by reducing labour supply and putting more pressure on fiscal positions,\u201d he said.<\/p>\n
\u201cI would add that while the economics of ageing populations has been an issue much discussed and assessed in academic and policy circles, I am not persuaded that the significance of it is properly understood in the wider debate.\u201d<\/p>\n
Try full access to The Telegraph free today. Unlock their award-winning website and essential news app, plus useful tools and expert guides for your money, health and holidays.<\/b><\/p>\n<\/p><\/div>\n