Bank of England (BoE) warns that artificial intelligence (AI) could trigger financial market shocks and the UK needs to be prepared for them.

BoE's Governor said that the AI investment boom carries the risk of sparking wider financial market shocks if corporate earnings expectations or productivity gains fall short, Bank of England Governor Andrew Bailey warned.

Speaking on systemic financial risks, Bailey noted that massive capital inflows into AI have pushed asset prices sharply higher, increasingly intertwining technology spending with core financial markets.

Andrew Bailey said the central bank is watching the huge amounts of money being invested in AI "very carefully" and cautioned that "not everybody always wins".

The money that has been spent on and loaned to AI firms over the last few years in the hope of large returns is causing markets to value some of them as multi-trillion dollar businesses.

Asked if he believed an AI bubble could burst, Bailey said: "You could see some correction of asset prices at some point."

As reported by BBC, the company saif that the risks and benefits of AI could be for the UK economy. Bailey said he believed the technology has "great potential to strengthen growth in our economies", adding that this was something the country needed.

"But it also brings with it substantial risks and so we have to be on top of both of those."

One such risk is what happens if the big bets being made on AI don't pay off.

The central bank's Financial Policy Committee highlighted that a significant portion of AI-related expansion is being fueled by rapidly growing debt and high leverage, raising the danger that a sudden shift in investor sentiment could amplify losses across global equities and credit.

While central bank officials emphasized that institutions must remain vigilant and prepared for potential volatility, the warning underscores rising international anxiety over structural bottlenecks, high valuations, and the broader economic fallout should the current tech rally face an abrupt correction.