Bank of England’s Bailey sees early signs of an AI-driven positive supply shock

Bank of England Governor Andrew Bailey said he is seeing early signs of an AI-driven positive supply shock that could lift UK growth, while warning that financial stability risks would mount if productivity gains fall short of expectations. The remarks frame AI as a potential structural boost to the economy rather than a demand-side stimulus, with Bailey pointing to emerging evidence of efficiency gains across firms. The central bank's concern is that markets and lenders may have priced in optimistic productivity outcomes that take time to materialize, leaving asset valuations exposed to disappointment. Bailey's comments come as the BoE weighs how quickly AI adoption can translate into measurable output gains and whether that justifies the current pace of investment. Policymakers will be watching forthcoming productivity data and business AI adoption surveys for confirmation that the supply-side effect is real and durable.