Bank of England Governor Andrew Bailey has issued a stark warning that a speculative ‘AI bubble’ could be forming. This concern is rooted in the US, where the worst tech layoffs in two decades are sending shockwaves through global markets.
The UK’s financial authorities are now closely monitoring the turmoil in the US, fearing that the fallout from AI-sector disruptions could have significant domestic consequences. Deputy Governor Dave Ramsden warned on Thursday that if the bubble bursts, it could ‘weaken global demand’ and lead to ‘spillovers back to the UK,’ tightening financial conditions for British businesses and investors.
Market Turmoil and Human Cost of Overheated Valuations
The warning signs from the US tech sector are becoming increasingly alarming. On Thursday, the Nasdaq Composite fell 1.9 per cent, while the broader S&P 500 declined 1.1 per cent, reflecting waning investor confidence in the AI boom.
This decline is driven by a brutal correction in the US labour market. According to Challenger, Gray & Christmas, US companies announced 153,074 job cuts last month — the worst October for tech layoffs since 2003. The figures highlight the human cost of what many see as an overheated industry chasing unsustainable valuations.
Analysts warn this situation was predictable. Julien Garran of MacroStrategy Partnership told DW that the massive flow of capital into AI has resulted in a ‘misallocation of capital equivalent to 65 per cent of US GDP — four times bigger than the housing bubble before the 2008 financial crisis.’ Despite record investment, US Census Bureau data shows corporate AI adoption has actually declined since summer. The gap between soaring valuations and real-world returns is forcing a painful reckoning for the industry.
UK on High Alert Amid Ambitious AI Plans
The Bank of England is now alert to the risks. Governor Andrew Bailey stated on Thursday that while AI could be the ‘next big mover in terms of productivity,’ the current market valuation remains uncertain. He warned, ‘At the same time, we could have a bubble,’ highlighting the immediate threat to the UK economy.
In contrast to the speculative frenzy abroad, the UK is pursuing a long-term, foundational AI strategy. The government’s ‘AI Opportunities Action Plan’ estimates that successful AI adoption could add up to £400 billion ($524.57 billion) to the UK economy by 2030. Central to this plan is addressing the nation’s significant skills gap.
Through Skills England, a new initiative aims to train 7.5 million UK workers, supported by major tech firms like Google, NVIDIA, and Microsoft. Jacqui Smith, Minister for Skills, emphasised the importance: ‘AI has the power to transform our economy — but only if people have the right skills to utilise it effectively.’ This focus on workforce development aims to create sustainable growth, avoiding the boom-and-bust cycle seen in the US.
Navigating Between Hype and Long-Term Vision
Britain now faces a critical crossroads. The immediate threat from the US’s AI layoffs and market instability is real, with the Bank of England preparing for potential fallout from a bursting bubble. Yet, the UK’s strategy is not based on speculative valuations but on building a resilient, highly-skilled workforce that can sustain growth.
The question remains whether this foundational approach can fortify the UK economy before the American hype hurricane makes landfall. The coming months will reveal if Britain’s cautious, skills-focused strategy can weather the storm and capitalise on the long-term potential of AI.