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04/12/2025
Bank of England Warns of Higher Market Volatility From AI-Driven Trading
PYMNTS
The use of artificial intelligence in algorithmic trading could exacerbate market volatility and amplify financial instability, according to a policy paper by the Bank of England released this week.
As global markets reel from President Donald Trump’s tariff policy changes, the United Kingdom’s central bank warned that the widespread use of AI for trading and investing could lead to a “herding” behavior that could raise the chance of sudden market drops, especially during times of stress because firms might sell off assets at once.
As more firms use AI for investing and trading, there’s a risk that many will end up making the same decisions at the same time, the paper said.
“Greater use of AI to inform trading and investment decisions could help increase market efficiency,” per the paper. “But it could also lead market participants inadvertently to take actions collectively in such a way that reduces stability.”
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