Andrew Bailey yesterday warned Rachel Reeves not to forget the lessons of the financial crisis amid mounting pressure from the City to scale back regulation.
The Bank of England governor said that amid the clamour to cut through red tape in order to boost growth, the Chancellor must keep in mind the ‘lasting damage’ caused by the meltdown in 2008 and 2009.
And he rejected the idea of a ‘trade-off between growth and financial stability’.
Bailey said: ‘It is wise to avoid the idea that regulation is the best solution to any problem, but let’s not fall into the opposite notion that it is by definition and always the worst available option.
‘There is a reaction taking place against regulation, and the responses to the GFC [global financial crisis].
‘We must not forget the lasting damage done by the GFC.’
Calls are growing to revive the risk-taking culture that helped make Britain a global financial centre in the 1980s.
Some fear that culture has been suffocated by the deluge of red tape put in place to avoid a repeat of the financial crisis.
In a speech today, the City of London Corporation’s policy chairman Chris Hayward is set to warn, as growth stagnates, of the dangers of being too cautious.
Hayward will say last week’s downgrading of the UK’s 2025 growth outlook by the Bank of England, from 1.5 per cent to 0.75 per cent ‘highlights the scale of our enormous challenge’.
He argues for regulatory reform to go further and faster.
Hayward will add: ‘I truly think that we are focusing so strongly on avoiding failure, that we fail to support success.
‘The bottom line is that we’ve become allergic to risk. And finding the antidote can’t come soon enough.’
Reeves has signalled that she is ready to take on regulators as she desperately tries to revive her flailing growth plan.
In November, the Chancellor said that regulatory changes after the financial crisis had ‘gone too far’.
Heads have already rolled at two regulators, with Competition and Markets Authority chairman Marcus Bokkerink ousted last month and head of the Financial Ombudsman Service Abby Thomas leaving her role last week.
Reeves’s growth ambitions have so far fallen flat. The economy has stagnated since Labour came to power in July.
And business confidence is crumbling after the Chancellor’s £25billion raid on employer National Insurance.
Official figures tomorrow are expected to show that Britain’s gross domestic product shrank in the last quarter of 2024, putting the economy on the brink of recession.
DIY INVESTING PLATFORMS
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.
