Terrorist groups are exploring AI-powered drone attacks against Britain, MI5 chief Sir Ken McCallum warned on Tuesday.

He said artificial intelligence was “supercharging” the terrorist threat, creating new possibilities for attacks in the UK involving drones and biological weapons.

The warning follows rapid advances in drone warfare in Ukraine, where explosives can be deployed remotely from miles behind enemy lines. MI5 fears terrorist organisations could adapt and export that technology for use in attacks on British soil.

Sir Ken also cautioned that terrorists and hostile states could misuse AI to develop novel pathogens capable of causing widespread death and disease.

In his annual speech, the MI5 director-general said the national security risks emerging from AI were receiving “serious attention” within the agency. That work is taking place alongside efforts to confront a rapidly intensifying threat from hostile states.

MI5 is now “devoting more resources to countering state threats than during the Cold War”, Sir Ken said, revealing that the agency’s caseload in this area has quadrupled over the past decade.

However, the spy chief stressed that MI5 must also prepare for the threats that could emerge in the years ahead.

“Today [Tuesday], AI is already supercharging the cyber-security contest between attackers and defenders. It can produce propaganda and radicalising material tailored to the individual,” he said.

“We’ve caught terrorists seeking to exploit AI to improve their reconnaissance and attack methodologies, with AI-enabled drones adding a new twist.

“Not yet realised – but the misuse case to which I’d attach greatest weight is AI’s potential to change the stakes on existing or even new bioweapons. These risks are real.”

Chinese AI developer Moonshot is carrying out an internal review after researchers persuaded two of its models to provide information on making biological weapons and conducting assassinations.

A threat intelligence report published by Anthropic last month said criminals and state-backed groups had tried to use its AI models to design missiles and bombs, as well as create deadly pathogens.

The company said the Houthis in Yemen – who in recent days have terrorised Saudi Arabia with airstrikes, killing more than a dozen people – had launched three weapons programmes using its Claude product.

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Sir Ken said AI could also help organisations such as Al Qaeda find weaknesses in security surrounding virus research and development in the UK.

Asked whether AI could turn the common cold into a lethal virus, he said: “One concern would be that comparatively low sophistication actors may have an ability uplift in the AI era if these guardrails do not function as intended.

“It has long been the case that many terrorists would dearly love to have some capability around chemical, biological or radiological weaponry, but that has not been easy for them to achieve.

“One risk – this has not yet manifested – but one risk is that AI could enable dangerous knowledge to get into the hands of those who we all would rather didn’t have that knowledge.

“A second different risk, much discussed on open source and I am not in any way seeking to hype this risk but it deserves sober attention, is the possibility that AI could generate a number of novel pathogens not previously seen.”

Sir Ken also announced that MI5 will establish an AI threat assessment centre to examine and assess emerging risks.

In a wide-ranging speech at the Thames House headquarters, Sir Ken warned of proxy attacks on the UK from both Russia and Iran.

He described how Tehran has ambitions to ‘come at harder targets, like military sites’, adding that the alleged terror plot at RAF Fairford in Gloucestershire was ‘not unique in the UK’. 

There have been more than 50 arrests in the UK in 12 months related to Iran.

But Russia remains ‘aggressor number one as Putin continues to lash out at the UK and its allies’ in an intimidation tactic over the war in Ukraine, Sir Ken said. 

He outlined how MI5 is also fighting off an espionage threat from China and a ‘significant’ increase in extreme Right-wing terrorism, linked to the migrant crisis.

He said: ‘Over the last year the most marked trend has been an increase in cases where extremist versions of anti-immigration and anti-Muslim grievance are tipping into terrorist intent. 

‘We’ve dealt, for example, with would-be terrorists aspiring to attack mosques and venues connected to immigration and asylum.’

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Australian house prices could fall by as much as 40 per cent in some suburbs as the country heads towards its most severe property downturn on record, a prominent economist has warned.

The forecast comes as borrowers contend with four interest rate rises from the Reserve Bank this year, while another increase remains possible in November.

Chris Joye, founder and chief investment officer of Coolabah Capital Investments, said Sydney property prices were already declining at an annualised rate of 18 per cent.

Speaking on Mark Bouris’ Straight Talk podcast on Monday, Mr Joye predicted a 17 per cent peak-to-trough fall in house prices.

‘Based on our numbers, individual suburbs in Sydney will fall by as much as 20 to 40 per cent,’ Mr Joye said.

‘National house prices are currently falling at an annual rate of about 16 per cent. We expect the peak-to-trough decline nationally to be around 13 per cent.

‘On our numbers, we’ll break the record for the biggest fall in house prices before Christmas. Sydney is falling at 18 per cent a year, Melbourne is a little lower, but declines are in double digits across the country.’

Mr Joye said the property downturn could be compounded by a recession, rising business failures and a sharp increase in unemployment.

He warned Australia faced a genuine risk of recession, saying there could be ‘a big increase in unemployment, a lot of businesses are going to go bust and a lot of people are going to lose their jobs’.

‘I think it’s going to be tough,’ he said.

‘There will be adversity. Your house will not be worth as much as it was, your superannuation probably will not be worth as much as you expected, and you may have to work a little longer.

‘Perhaps you won’t retire when you thought you would.’

Other property analysts are also predicting an extended downturn, although their estimates are less severe.

A survey of 384 real estate experts found that property prices could decline by between 8 and 11 per cent from their March peak and may not begin to recover until September 2027.

The figures suggest the housing market may be only halfway through its decline, with dwelling values already down 5.2 per cent since March, according to property data firm Cotality.

In Sydney and Melbourne, an 11 per cent decline would push property values back to levels last recorded as early as February 2021.

Australian Property Institute research head Sherman Chan said uncertainty over interest rates and government policy was keeping buyers on the sidelines.

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‘People are worried about more interest rate hikes on the horizon, and they are after greater clarity,’ Dr Chan told AAP.

Higher interest rates were the experts’ biggest concern, followed by inflation and changes to tax concessions for property investors.

The cash rate was raised to a 15-year high of 4.6 per cent at the Reserve Bank’s September 29 meeting, with governor Michele Bullock warning further increases could follow before the end of the year.

The RBA has made clear it is prepared to tolerate a weaker labour market and falling property prices to bring inflation under control.

An International Monetary Fund outlook on Tuesday forecast inflation would remain above the RBA’s two-to-three per cent target until the end of 2027.

But Dr Chan said interest-rate fears alone could not explain the property slump, arguing uncertainty surrounding Labor’s tax changes was also weighing heavily on buyers.

‘There’s a lot of “wait and see”. High inflation and cost-of-living concerns… (don’t) really justify the slump that we are seeing,’ she said.

‘It is really about the lack of clarity about the policy changes that’s holding people back.’

Under the government’s proposed changes, negative gearing would be limited to new builds, while real capital gains would be taxed at a minimum rate of 30 per cent from July 2027, the same month the API expects the housing market could begin recovering. 

Dr Chan said a recovery could come earlier if buyers gained greater certainty about the changes before they took effect.

‘I won’t rule that out,’ she said.

‘Some are even optimistic enough to think that it will rebound in the start of 2027, and some are more pessimistic, thinking that it will drag into 2028. What we present is that medium perspective.’

AMP is forecasting a 15 per cent fall in Australian house prices that could become the worst downturn on record. 

Such a fall would wipe about $139,971 from national home values and $241,057 from Sydney prices, potentially leaving recent buyers who purchased near the peak facing mortgage stress and negative equity, where they owe the bank more than their home is worth.

Mr Joye blamed the inflation problem largely on government spending, population growth and weak productivity, dismissing claims that the war between the US and Iran and resulting surge in fuel prices was the main culprit.

He said state and federal governments had racked up $660 billion in spending on cheap credit since 2022. 

‘It’s all public spending. It’s all population growth and migration,’ he said.

‘And it’s all productivity. I mean, the oil price stuff is at the margins.  

‘It’s not… the reason the RBA hasn’t hit its inflation target since 2021. That’s a recent event. So, he’s just bulls***ing.’