The governor of the Bank of England (BoE) has told MPs financial stability is the foundation of economic growth and foreign investment, and that there can be no trade-off between the two. He also stressed there was a “choice of how regulation is operated.”

Andrew Bailey told the UK Treasury Select Committee on Wednesday the fact that the UK had struggled with economic growth was a direct result of the financial instability around the 2008 financial crisis.

He did however accept that, “there are choices to be made, around the particular choice of regulatory instruments, the choice of how regulation is operated, to enable us to achieve not only the primary objective of financial stability but also support the secondary objectives including growth and competitiveness, and we are very supportive of this.”

Mind your language

Within that context, he insisted that the primary objectives of the Bank and other UK financial regulators around financial stability had not changed, but welcomed a ‘change of language’ from the government around the secondary objectives.

Bailey added that he supported the latest calls for growth, and accepted that the UK had struggled in that area since the financial crisis more than 15 years ago.

The Bank and other UK financial regulators are facing increasing pressure and criticism from the government as well as businesses for what has been called unnecessary regulatory bureaucracy that is hindering economic growth.

But the BoE boss insisted that steps were already being taken to decrease the regulatory burden. He referred to plans to reduce data reporting requirements for banks as an example.

Mortgage rules warning

Bailey also warned MPs about the negative consequences of relaxing mortgage rules too much, insisting that current guidelines had proved beneficial.

“They have helped to avoid the creation of a large tail of mortgages, which, when we have the inevitable cyclical downturn or shocks that hit the economy, turn out to be a real problem of the sort we have seen in the past,” he told the FT.

A similar warning also came from the UK’s FCA last week. The agency said watering down mortgage lending rules “will cause more failures that harm consumers,” the FT reported.

FCA chief Nikhil Rathi, also asked parliament to define what “an acceptable level of harm to consumers” might be.

“On mortgages, [what] if there are more defaults if we relax [rules]? One or two things are going to go wrong here and not everybody is going to play completely by the rule book, and is there acceptance of that?” he asked the House of Lords financial regulation committee.

But despite those warnings, the FCA recently shared its proposals with the government, proposals which could potentially change or relax mortgage rules in the UK.

The Labour government has been in a tense standoff with regulators for the past few months, pushing them to get rid of rules that prevent growth and foreign investment.

Earlier this month, the chair of the UK’s Competition and Markets Authority (CMA) was forced by ministers to step down due to “a different strategic approach to economic growth.”