It’s late summer in the garden of one of London’s most celebrated folk clubs, sunlight pouring through the trellis on to two linchpins of the genre. They come from different eras: the younger man is bearded and gentle; the older woman wears white sunglasses and a sparkly blue jumper bearing the legend “Aloha!”

Both are at the Troubadour to talk about the revival of Island Records’ pink label – a home for pioneering folk music and singer-songwriters in the late 1960s and early 70s – and reflect on the folk music they have made, and loved, through the decades.

“I fucking hate folk festivals,” declares Linda Thompson, causing Jon Boden – ringleader of the 11-member-strong, multiple-award-winning group Bellowhead – to crease up. “It’s the camping”, she explains. “People do it till they’re my age, pushing 70. I’ve been talking to some of them on Facebook, and they’re all: ‘We’ve been to Dartmouth, we’re going to Portsmouth, then Sidmouth.’ Jesus Christ, but there you go.”

There is no better corrective to the tired image of the finger-in-the-ear folkie than Thompson. She released I Want to See the Bright Lights Tonight, one of folk-rock’s greatest albums, with her then husband, Richard, 40 years ago. An album of original compositions influenced by English and Scottish songs, it became a pink label touchstone, alongside pioneering records by John Martyn, Fairport Convention and Nick Drake.

Now the pink label is back. Bellowhead’s latest album, Revival, was released on it in June, and their cover of I Want to See the Bright Lights Tonight’s title track sits proudly upon it (it is also the B-side to their new single, Let Her Run). Adding extra brass, accordion and electric guitars, Bellowhead’s version remains a joyous celebration of the pull of the weekend, and getting good and drunk. Which is just how it was in the old days, says Thompson.

The pink label began in 1967, and moved Island beyond the West Indian music Chris Blackwell had founded it to release. Blackwell wasn’t a folk connoisseur, Thompson explains; instead, he relied on the advice of his new friend, Joe Boyd. Boyd had engineered sound at the Newport folk festival the year Bob Dylan went electric, and had started producing records by Shirley Collins, Martin Carthy and the Incredible String Band after moving to the UK.

For a while, he was also Thompson’s boyfriend. “Chris used to listen to Joe. And Joe would say: ‘No, Chris, they’re fabulous. This guy, Nick Drake, he’s fabulous.’ Chris preferred Bob Marley, of course. But who doesn’t?” Thompson is keener than mustard to demythologise those days. Blackwell would never have signed traditional artists such as Carthy, she points out (“more’s the pity”), and non-folk acts were released on the pink label too, such as Roxy Music. “And of course, I never said this to Chris – I don’t care what I say now – but I thought Roxy Music were ridiculous really.” (Thompson makes sure it’s plain she’s a fan of theirs now.)

Thompson will admit there was a pink label folk-rock mentality, however. People gravitated there because of Boyd, but there was also a tight friendship group within it – Thompson, the members of Fairport, Martyn and Drake would all hang out together. Boden leans in; he wonders how it felt being part of that. “I wouldn’t say I was excited by it, but I knew that lots of people on it were amazing,” Thompson replies. Then she smiles. “We used to have sing-songs in the studio, you know. Nick would sing a song, I would sing a song, Richard would sing a song, Sandy would play the piano …” Shy, retiring Drake with the raucous Sandy Denny? “Yes. It’s a shame the tapes were never on.”

As for the material they made as individuals, Thompson was never confident about it. “I thought: ‘Nobody’s ever going to buy any of this.’” She looks at Boden. “Except me, and you 30 years later.”

Why has Island revived the pink folk label now? “Record companies are trying to cut their risk,” she says. “The folk demographic still actually buy records.” They would sign anyone these days, she hams: her daughter, Kami, is also on the label as part of folk duo the Rails.

Does that family connection mean a lot? Her teeth clench. “I’m terribly sorry, but it doesn’t at all. If she was making money, I’d be excited.” That’s the main difference in the folk scene these days, she says. “Back then, as long as you were good, it was easy. I mean, nothing cost anything. Now nobody will pay you.”

Boden is less sure about why the label has been revived. Is it because Island wants to set the music of its new acts in a retro setting, perhaps? He’d like to think not, but he knows the label is conscious and proud of its history. He points out a website Island runs call We Are Folk, where newer signings are set against older acts such as Bert Jansch, Comus and Fotheringay. Cynics will notice it features bigger Island bands, too, including Mumford & Sons and Ben Howard. Realists will note the original pink label also hosted Cat Stevens and Free.

Boden got into folk-rock himself through a pink label artist, Denny, when he was a young rock fan: he heard her singing on Led Zeppelin’s The Battle of Evermore. (“Sandy used to drink with them,” Thompson gossips, “when John Bonham was the biggest drinker in the world. They’d come to our studios, and we’d all be on the floor, dying. Sandy would still be drinking.”) From there, Boden discovered Fairport Convention’s 1969 album Liege & Lief, another pink label classic, which married traditional music and rock, with old songs such as Tam Lin and Matty Groves gaining sharper teeth and thicker grooves.

For Boden, Island’s pink label is a trunk from which different branches sprout, producing many successors; he mentions Martyn and Drake’s jazz-influenced guitar music specifically. Does he feel pressure for Bellowhead to continue the label’s legacy? His response is diplomatic. “Well, the quality of those old records is overwhelming, and the quantity is quite overwhelming … but Island is a really big label now, with much more important people to worry about than us.” He insists that Bellowhead have the same freedom with Island as they did with their previous, smaller labels, Navigator and Westpark.

Boden does think that the modern folk scene owes the early 70s a lot, though, especially in social terms. “To me, the 70s folk boom created a big social movement in a way that the pre-70s scene didn’t. Before that, folk was more about being cool and sitting in coffee shops, whereas the 70s was all: ‘Wahey, we’re going to be morris dancers!’” That’s definitely true, chips in Thompson. On holiday in California recently, she even saw some “bloody morris dancers in the car park!”.

She will also admit that she is excited about folk’s future. “The energy these bands have! That’s not traditional for folk people, you know.” And she’ll concede – “Oh, go on then” – that folk festival culture plays its role. “I like people jumping around and having a good time. Not being like me, with the stage presence of a totem pole.” Two generations of folk-rockers laugh loud and long; not a bad legacy for a label after all.

• Bellowhead’s single Let Her Run/I Want To See The Bright Lights Tonight is out now on Island. They tour the UK from 7-29 November, bellowhead.co.uk