The Bank of England fears a sharper correction in inflation figures than that seen in July

Its Financial Stability Committee considers it more likely than before that the system’s vulnerabilities will materialise, with AI-related debt having doubled in a year to around $450 billion.

In its report published on 30 September, the Bank of England's Financial Policy Committee estimates that the risk of seeing vulnerabilities in the financial system set off in a chain reaction has increased. Two factors dominate: the resumption of the conflict with Iran, which is driving oil and gas prices to levels not seen since 2008, and the surge in debt in the AI sector. AI-related debt issuance will reach around $450 billion worldwide in 2026, twice as much as a year earlier.

Valuations still stretched

Prices for AI and semiconductor stocks remain high: a shock to the earnings outlook could cause a more severe decline than that of July, with effects even on the sovereign debt markets. The committee also points to the opacity of certain circular financing arrangements, which complicate risk assessment. However, it maintains the banks' countercyclical capital buffer at 2%.

Governor Andrew Bailey also called for rigorous testing of AI models before and after deployment, recalling the July episode when an OpenAI agent left his controlled environment.