LONDON — The Bank of England warned Wednesday that risks to the global financial system have grown, citing higher energy prices, geopolitical tensions and the rapid expansion of artificial intelligence-related debt.
The central bank’s Financial Policy Committee said increases in oil and gas prices had driven bond yields to their highest levels since 2008. While financial markets and the wider financial system have remained resilient, the committee warned that markets could still face a sharp adjustment.
The FPC left Britain’s Countercyclical Capital Buffer unchanged at 2%. The measure is designed to help banks withstand periods of financial stress.
The committee also pointed to the renewed conflict involving Iran, saying higher prices for oil, gas and refined products were contributing to a more prolonged negative supply shock.
Growing borrowing linked to artificial intelligence was another area of concern. According to the FPC, the rapid rise in AI-related debt issuance has increased capital-market exposure to developments in the technology sector.
Morgan Stanley estimated earlier in September that global AI-related debt issuance had reached approximately $450 billion, double the amount recorded in 2025.
The Bank of England also warned about operational and cyber risks associated with advanced AI systems. Governor Andrew Bailey called for rigorous testing of AI models both before and after they are deployed.
Bailey said regulators should improve their understanding of the technology, test AI systems and establish credible points for intervention before moving toward a more formal regulatory framework.
The FPC noted that AI and semiconductor stocks suffered sharp declines in July, although overall market activity remained orderly. It warned that elevated valuations could increase vulnerability to a larger market shock.
The central bank also said it plans to release more detailed proposals in early 2027 addressing bank leverage rules and the gilt repo market.
The proposed reforms are aimed at strengthening resilience in an area of the financial system that can come under pressure when market liquidity weakens. The Bank of England said net borrowing in the gilt repo market stood at around £200 billion ($270 billion), while hedge-fund leverage had remained high but stable in recent months.
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