Chancellor George Osborne has warned the Bank of England not to undermine an economic recovery by blindly focusing on banking stability.
The Financial Times reports the chancellor gave the warning as part of a letter to outgoing Bank governor Sir Mervyn King, who will be replaced by Bank of Canada governor Mark Carney in July.
Osborne told the Bank’s Financial Policy Committee to give “due weight to the impact of its actions on the near-term economic recovery”.
He acknowledged the “short-term trade-offs” the FPC needed to bear in mind between ensuring banks were sufficiently capitalised and at the same time boosting lending.
Osborne said the FPC should pay attention to its secondary objective of sustaining growth “at this stage in the cycle.”
He also encouraged FPC members to ensure their speeches and opinion statements were co-ordinated, saying market confidence would be boosted by “consistent messages about the planned regulatory response to financial stability risks.”