AI debt surge raises risk of sharp market correction, warns Bank of England - Financial Times

The Bank of England has flagged a rapid build-up of debt linked to artificial intelligence as a potential source of instability, warning that it raises the risk of a sharp market correction, according to the Financial Times. The concern is not AI itself, but how the boom is being financed: when investment is funded by borrowing, any reassessment of future earnings can force rapid deleveraging.

For markets, the significance lies in the transmission channel. AI-related borrowing can concentrate exposure across lenders, investors and suppliers, so a shift in sentiment could ripple beyond a single sector. The Bank's caution echoes earlier warnings about stretched valuations in technology and credit markets.

What to watch: whether credit growth tied to AI continues to outpace cash flows, how lenders disclose their exposure, and whether valuations adjust gradually or abruptly. None of this predicts a downturn. It simply means the cost of financing, and the market's tolerance for disappointment, deserve closer attention than headline growth figures alone.