By David Milliken

LONDON, July 14 (Reuters) - Bank of England Governor Andrew Bailey warned against calls for broad deregulation in a speech at an annual dinner for Britain's banking elite where a year earlier finance minister Rachel Reeves likened red tape to a "boot on the neck" of businesses.

Bailey told the annual Mansion House dinner in the City of London financial district on Tuesday that well-designed regulation was vital for supporting economic growth.

"To simply argue for less regulation is unhelpfully reductive," Bailey said in a text of the speech provided in advance by the BoE.

Britain was "operating in a fairly soft economic setting activity-wise", Bailey added, after earlier in the day telling a parliament committee that renewed conflict between the United States and Iran was so far having a limited impact on inflation.

Bailey is speaking just before Reeves, at the same event, gives what may be her last big speech as finance minister. Former Manchester mayor Andy Burnham, who is set to succeed Keir Starmer as prime minister next week, is expected to replace Reeves.

Bailey said not every rule on the BoE's books was "perfectly formed". Last week the central bank set out plans to ease some rules on how much capital banks must hold to meet leverage requirements, after relaxing a related requirement in December.

Such tweaks, Bailey said, were a matter of balancing the safety of bank deposits against ensuring banks were profitable enough to lend to the rest of the economy — something which they had struggled to achieve in the 2010s.

"Simply arguing for 'more' or 'less' (capital requirements) are not sensible positions in and of themselves," he said.

Bailey, who heads the Financial Stability Board, an international forum for regulators, used his speech to renew his call on the United States to take a more cooperative approach to tackling the risks from new artificial intelligence models.

"We need much stronger coordination of testing of frontier models before they go into wide circulation," he said.

"This needs to be coordinated internationally because no country can seal itself off from the cross-border nature of systems that are prevalent today."

Earlier on Tuesday, a government banking adviser, Starling Bank Chief Information Officer Harriet Rees, said British banks' inability to access Anthropic's Mythos AI model underscored the urgent need for Britain to build its own AI capabilities.