Bank of England Warns AI-Driven Debt and Stretched Valuations Threaten Stability

The Bank of England has warned that the rapid expansion of debt financing tied to artificial intelligence, combined with stretched equity valuations, could pose risks to financial stability if conditions turn. In its Financial Stability Report published on 7 July, the bank's Financial Policy Committee said AI companies are increasingly turning to the financial system for external financing, particularly debt, to fund a historically unprecedented pace of infrastructure investment, and that this borrowing has accelerated in the first half of 2026. While the risks have so far been contained by relatively modest levels of outstanding debt, the committee cautioned that this is changing quickly, and that an adverse shock to AI firms that hurt their ability to service debt could ripple through global financing conditions. The report also flagged a substantial increase in the use of leverage in equity markets and noted that UK banks have sizeable exposures to private market funds and highly leveraged companies. Governor Andrew Bailey and committee members discussed the findings at a press conference, reiterating that the overall UK financial system remains resilient while urging vigilance.