Bank of England governor Andrew Bailey has warned the Chancellor against forcing pension funds to invest in UK assets.

Rachel Reeves wants funds to allocate a share of their vast portfolios to British businesses and infrastructure to support economic growth.

This led to a voluntary accord signed by 16 of the UK’s largest pension investors to allocate at least 5% of their portfolios into domestic private assets.

However, Mr Bailey says ministers should not be dictated where the industry invests its funds, joining those who say they have a duty to invest in the best interests of savers.

Charlie Nunn, the chief executive of Lloyds Banking Group, this week compared it to ‘capital control’ policies in communist China.  Aviva CEO Amanda Blanc compared the move to using “a sledgehammer to crack a nut“.

Mr Bailey said: ‘We’ve had a low level of pension fund investment in the economy and I think structural changes to the industry are helpful.

“However, I do not support mandating, I don’t think that’s appropriate.”

His comments came ahead of the Chancellor’s Mansion House speech next week when she is expected to give further details of pension reform.

Mr Bailey was also speaking after the Bank of England published its latest report on the UK’s financial stability.

He observed that firms were choosing not to list in London and invest in the UK because of ongoing financial and geopolitical instability.

Asked for his views on the dearth of listings and IPOs taking place in London, he said: “A higher level of uncertainty in the world economy…is causing investment decisions to be delayed.

“That of course can include decisions over whether to raise capital and which markets to raise capital in.”