Bank of England warns of rising financial risks from energy prices and AI — Cyprus Mail
In the United Kingdom, the Bank of England has warned of a growing risk that interconnected vulnerabilities in the financial system could materialize. As Cyprus Mail reports, the central bank’s Financial Policy Committee linked this to the renewed escalation of the conflict in Iran, rising prices for oil, gas and petroleum products, as well as the rapid growth of artificial intelligence-related debt borrowing.
The Bank of England noted that rising energy prices had pushed bond yields to levels not seen since 2008. At the same time, the financial system and stock markets had so far demonstrated resilience, but the regulator believes that the danger of a sharp correction in market valuations remains. The committee kept the countercyclical capital buffer at 2%.
AI debt financing
The committee also drew attention to capital markets’ increasing dependence on developments in artificial intelligence technologies. According to Morgan Stanley, at the beginning of September, the volume of global AI-related debt borrowing stood at about $450 billion — twice as much as in 2025.
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Shares in companies linked to AI and semiconductor production fell sharply in July, but market functioning remained orderly. The regulator warned that, given the current high valuations, a stronger shock could lead to a broader reassessment of the value of such assets.
Rules for banks and the repo market
In material published alongside the minutes of the committee meeting, Bank of England Governor Andrew Bailey stressed the need for thorough testing of advanced AI models before and after their implementation. In his view, more formal regulatory rules may emerge later, but the technologies must first be understood, tested and supplied with effective intervention mechanisms.
The Bank of England also plans to present more detailed proposals at the beginning of 2027 on leverage ratio rules for banks and the government bond repo market. Net borrowing in this market amounts to about £200 billion, while hedge fund leverage has remained high but stable in recent months.
