BANK of England Governor Mark Carney has predicted the financial sector could double in size within the next 25 years.

But he warned that, to do so, the Government must hold its nerve and resist pressure to water down regulation after Brexit.

Speaking to mark the 10th anniversary of the start of the global financial crisis, he said a thriving City meant more jobs, tax revenues and exports.

However the governor said the City should not be allowed to expand rapidly if it meant repeating the risky speculation of a decade ago.

The 2007 crisis began when the French bank BNP Paribas announced it had blocked withdrawals from funds because of a “complete evaporation” of liquidity.

Mr Carney also warned yesterday the economy will remain “sluggish” as Brexit continues to hit household spending and businesses.

He said mounting uncertainty over the UK’s future relationship with the EU is holding back business investment and consumer spending as the Bank reduced its growth forecasts for this year and next.

The Bank kept rates on hold at 0.25 per cent as Britons suffer amid a tightening squeeze on incomes from rising prices.

Mr Carney said Brexit uncertainty “weighs on the decisions of businesses and households and holds down both demand and supply”.

He warned that the pressure on families would continue for the next few quarters, with Britain in the “teeth” of an income squeeze.

But he said wages will start to outpace inflation next year, while growth will also begin to pick up. He also dismissed suggestions that London could become a financial centre with only light-touch regulation in order to attract business after the UK left the EU.

He said the size of the financial sector would increase relative to the size of the economy if things went according to plan after Brexit. That meant there could be no going back to the lax regime that existed before 2007.

He was speaking as workers at the Bank of England’s staged their first strike in more than 50 years.

Members of the Unite union working in departments including maintenance and security have walked out for three days. The industrial action ends today.

The union, which is protesting at a below-inflation pay rise, blames Mr Carney for the failure of last-ditch talks held at the conciliation service Acas.

Mr Carney said the Bank was aware that “we have a financial system that is 10 times the size of this economy. It brings many strengths, it brings a million jobs, it pays 11 per cent of tax revenue, it is the biggest export industry by some token. All good things. But it’s risky.

“We have a view that post-Brexit the level of regulation will be at least as high as it currently is and that’s a level that in many cases substantially exceeds international norms.

“There’s a reason for that, because we’re not going to to go the lowest common denominator in a system that is 10 times size of GDP. If the UK financial system thrives in a post-Brexit world, which is the plan, it will not be 10 times GDP, it will be 15 to 20 times GDP in another quarter of century because we will keep our market share of cross-border capital flows.

“Well then you really have to hold your nerve and keep the focus”.

The governor said central banks and financial regulators had to keep up their guard because the passing of time meant people started to forget why the rules had been put in place.

He said: “The problem you have is that the same issues re-emerge under different labels and the progress that’s been made is gradually chipped. The challenge for institutions such as the Bank is to anticipate those problems without snuffing out innovation.”

In its quarterly inflation report, the Bank cut its forecasts for growth to 1.7 per cent in 2017 and 1.6 per cent in 2018 compared to the 1.9 per cent and 1.7 per cent predicted in May.

The pound dropped on news of the bank’s decision, falling below the 1.32 level against the dollar.