The Bank of England (BOE) is planning to war-game the potential economic and financial impact of a full-blown artificial intelligence (AI) shock amid fears that the technology would cost vast numbers of jobs and cut through a swathe of businesses.
The British central bank would also consider whether to incorporate the assessments into its broader banking stress tests to capture a possible surge in household and company loan defaults, and the damage inflicted on lenders, a person familiar with the matter said.
Concerns about the economic threat posed by AI have rocketed after Anthropic chief executive officer Dario Amodei said that AI “could displace half of all entry-level white collar jobs in the next one to five years.”
Photo: Reuters
A dystopian scenario published last month by Citrini Research sparked a brief market selloff, and fears of a jobs bloodbath intensified when financial technology firm Block Inc slashed its workforce by almost a half citing AI — with cofounder Jack Dorsey warning other firms would inevitably follow.
In the UK, the British Office for Budget Responsibility this week calculated AI-led “technological displacement” could result in an additional 500,000 unemployed, no extra economic growth and ￡9 billion (US$12.08 billion) more in government borrowing a year.
The BOE has warned about the financial consequences of a collapse in the AI stock valuations and is keeping a close eye on the use of AI within the financial sector, but has made little comment on the potential for wider economic disruption.
The person said the BOE would consider the macroeconomic and core financial market consequences of AI adoption under various scenarios, adding that those would feed into the normal process of deciding on commercial bank stress testing scenarios.
A BOE spokesperson declined to comment.
National Institute of Economic and Social Research director David Aikman said the bank should be running a series of AI exploratory scenarios to prepare for the worst, having done similar planning on climate change and Brexit in the past.
While the BOE is unlikely to have the tools to address an AI economic shock, it has the expertise and the resources to do the macroeconomic modeling for the British Treasury, which has many more policy options at its disposal, he said.
“Scenario planning would be of enormous value. It could help the government think about how it would respond,” Aikman said.
In January, British Minister of State for Investment Jason Stockwood told the Financial Times that the British government has discussed introducing a universal basic income for industries hit by AI.
University College London economics professor Wendy Carlin also urged the BOE to start war-gaming AI-led economic risks.
It was “a sensible thing for them to be doing,” she said.
The bank currently runs banking stress tests once every two years to see how resilient the system is against extreme risks.
Speaking at an event held by Elgin Advisory and the Society for Professional Economists on Friday, Ken Rogoff, Harvard University economics professor and former IMF chief economist, said US tariffs were a “head fake, making you look at something else when it’s not the big show going on” compared with “the job losses, the existential threats” of AI.
At the same event, BOE chief economist Huw Pill said the bank does not have the tools to rescue the economy from an AI catastrophe.
“What you’re really talking about is a world where, on average, people are better off, but there’s much greater inequality. Monetary policy has to deal with the aggregate,” he said, referring to its main remit of keeping inflation at 2 percent.
The government has “many other policies,” he added.
BOE Governor Andrew Bailey, an economic historian, compared AI to the Industrial Revolution and said it was likely to displace jobs.
“We need to be prepared for that,” he told the BBC in December last year.
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