Bank of England Warns AI Debt Surge and Repo Borrowing Heighten Market Correction Risks

The Bank of England's Financial Policy Committee warned that interconnected vulnerabilities in the global financial system are growing, highlighting that elevated valuations leave assets vulnerable to sharp repricing. Citing Morgan Stanley estimates, the central bank reported that global AI-related debt issuance reached about $450 billion in 2026, doubling from the previous year. The BoE cautioned that if AI productivity gains disappoint, it could shock asset valuations and sovereign debt markets. Meanwhile, the central bank kept its Countercyclical Capital Buffer at 2% and flagged risks in UK gilt repo markets, where non-bank borrowing reached £200 billion.