Bank governor warns of risks of cutting regulation in bid for growth

The governor of the Bank of England has cautioned over the risks of removing financial regulation in a bid to drive to growth, amid efforts by the Chancellor to scrap red tape.

Andrew Bailey said in a speech in Amsterdam that he can see evidence there is a “risk of history showing signs of repeating itself” amid calls for deregulation as memories fade regarding the financial crisis.

He stressed there is “no trade-off” between financial stability and ambitions for stronger growth and competitiveness.

“If the baby is thrown out with the bath water so to speak, and financial stability is relegated in terms of its importance, we won’t achieve our objectives,” he said.

The message, at an event hosted by the Dutch central bank, comes as Chancellor Rachel Reeves continues to push forward with plans to scale back regulation.

In July, Ms Reeves launched the “Leeds Reforms” package of changes to the financial services industry to pull back restrictions and encourage more financial risk-taking in a hope it could drive economic growth.

A week later, Mr Bailey warned against tearing up post-financial crisis ring-fencing rules on banks, stressing a need to protect consumers.

Shortly afterwards, he also reportedly blocked a meeting planned by Ms Reeves to address the regulation of Revolut, due to concerns of political interference in the central bank’s oversight process.

On Friday, Mr Bailey highlighted a theory by economist Hyman Minsky that “as time passes, memories of a financial crisis fade and this leads to a questioning of the continuing need for the responses”.

He added: “This creates the risk of history showing signs of repeating itself, remembering back for instance to the strength of the deregulation argument before the financial crisis.”

The governor also told the audience he “pushes back” against arguments that post-crisis regulation caused the fall in productivity growth and weaker investment in the years since.