Bank of England said to model AI shock scenarios for economy

The Bank of England plans scenario exercises modelling a full-blown AI-driven economic shock to assess risks to jobs, households, firms, and the financial system, a person familiar said.

The BOE will consider if these scenarios should feed into its banking stress tests to capture possible surges in loan defaults and damage to lenders, the person said.

Concerns rose after a dystopian scenario from Citrini Research sparked a brief market selloff. Block Inc. cut almost half of its staff, citing AI. Dario Amodei, CEO of Anthropic, warned AI could displace half of all entry-level white-collar jobs within one to five years.

The UK’s Office for Budget Responsibility estimated AI-driven displacement could add 500,000 unemployed people, cause no extra economic growth, and increase government borrowing by about £9 billion (US$12 billion) annually.

Economists David Aikman and Wendy Carlin urged the BOE to run exploratory AI scenarios to aid government planning; Aikman noted the BOE likely lacked tools to address an AI shock.

Huw Pill, the BOE’s chief economist, said the bank did not have tools to rescue the economy from an AI catastrophe and that monetary policy had to focus on aggregate outcomes like inflation.

Andrew Bailey, governor of the Bank of England, compared AI to the Industrial Revolution and warned it was likely to displace jobs. He said in a December BBC interview: “We need to be prepared for that.”

🔗 Source: Bloomberg

🧠 Food for thought

Implications, context, and why it matters.

The bank’s immediate concerns focus on market plumbing, not job losses

The Bank of England flags financial system risks from artificial intelligence (AI) rather than centering on workforce disruption 1.
Its Financial Policy Committee is examining investment herding, where firms place similar trades when they rely on the same vendor models or datasets. That pattern can amplify market swings through correlated shocks 1.
Regulators also worry about concentration risk when too much activity depends on a small set of AI and cloud providers. The Bank cited the July 2024 worldwide IT outage tied to a flawed update from the cyber security firm CrowdStrike as a reminder that third-party failures can disrupt essential services 1.
The push for “exploratory scenarios” fits the Bank’s view that system-wide exercises could help test AI-driven shifts alongside existing monitoring tools 1.

An AI-driven downturn could set off the stability risks the Bank has flagged

The Bank of England warned about a potential “sharp correction” after it found valuations for AI-focused companies “particularly stretched.” It also compared US equity valuations to the dotcom period 2.
A large job displacement shock in the Bank’s scenario work could deepen an economic slowdown, which could spark that kind of drop in stock prices.
Industry figures cited by the Bank put AI infrastructure spending above $5 trillion (£3.8tn), with roughly half expected from outside funding and mostly through debt 2.
If markets fall hard, lenders could take losses, which matches the Bank’s concern about tighter links between AI firms and credit markets 2.