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

Bank of England Governor Andrew Bailey says artificial intelligence may already be doing something useful for the UK economy. He sees early signs that AI investment is producing a positive supply shock.

Bailey made the remarks in a speech at the Swiss Institute of International Studies in Zurich on November 9, 2026. He argued that AI spending is part of why the UK economy has shown resilience, even as geopolitical events and swings in energy prices keep pushing in the other direction.

What Bailey saw in the data

According to Bailey, the strength is showing up most clearly in business services. That fits the profile of a technology that tends to land first in offices, back-office functions, and professional work.

The Bank of England’s November 2026 Monetary Policy Report puts some numbers behind the story. It found that AI-related activity has accounted for nearly one-fifth of UK GDP growth since early 2026.

The money flowing into the sector is not small either. Global AI-related debt issuance reached approximately $450 billion by early September, roughly double the 2025 level.

On productivity, Bailey offered a forward-looking estimate. The annual boost from AI and digital technologies has been a modest 0.5% over the past three years, and he expects it could rise to 0.9% annually over the next three years.

The bubble in the room

Bailey did not deliver a pure victory lap. In the same breath, he flagged financial stability risks tied to what he called an “AI asset price bubble.”

His concern is simple to state. If the returns investors expect from AI come in weaker than hoped, or arrive more slowly than projected, asset valuations could correct sharply.

He has repeatedly described AI as the next general-purpose technology, the label economists reserve for innovations that spread across nearly every industry and lift growth broadly. He has paired that optimism, just as consistently, with warnings about the financial risks that come with a fast-moving investment boom.

What this means for policy and markets

For the Bank of England, a positive supply shock is a genuinely helpful development on paper. If AI lets the economy grow faster without stoking inflation, policymakers face a gentler tradeoff between supporting growth and keeping prices in check.

The resilience Bailey described is also arriving against real headwinds. Geopolitical tension and energy price volatility remain negative pressures, which means AI is offsetting drag rather than operating in a calm environment.

Watch the productivity numbers in particular. If the data starts tracking toward that 0.9% annual estimate, the supply shock thesis gets stronger and the bubble argument gets weaker. If productivity stays stuck near the 0.5% pace while borrowing keeps climbing, Bailey’s warning about sharp corrections would move from footnote to headline.

When AI-related activity accounts for nearly one-fifth of growth, any stumble in the sector shows up quickly in the broader economy, not just in tech portfolios.