Bank of England warns AI bubble fallout could shrink UK economy by 2.2%

The Bank of England is no longer whispering about AI market risks. It’s spelling them out in bold.

Governor Andrew Bailey has warned that a burst in the AI bubble could contract UK GDP by 2.2%, a figure large enough to push Britain toward recession. The warning, detailed in the Bank’s July 2026 Financial Stability Report, paints a picture of an economy increasingly vulnerable to the fortunes of a handful of tech companies an ocean away.

The triple whammy

Bailey described what he called a “triple whammy” threatening financial stability. First, market bets on AI companies have become dangerously one-sided. Second, nobody actually knows how fast AI adoption will happen. Third, it’s still unclear which companies will survive the inevitable shakeout.

AI firms now account for roughly 50% of the US S&P 500’s total market value. In 2022, that figure was 25%. Capital expenditure expectations for AI-related sectors now exceed $1 trillion by 2028. That’s up from less than $600 billion just six months prior, in December 2025.