Rachel Reeves calls for the Bank of England to prioritise climate change alongside economic growth.
- The Financial Policy Committee to refocus on climate issues, reversing a 2023 decision.
- Critics express concern over potential distractions from controlling inflation.
- Supporters argue integrating climate risks is essential for long-term stability.
- Former Bank head Mark Carney to advise on climate investment initiatives.
Rachel Reeves, the new Chancellor, has urged the Bank of England to elevate climate change considerations within its Financial Policy Committee’s mandate. This move aims to restore the focus on climate-related issues, a priority that was previously downplayed by former Chancellor Jeremy Hunt in 2023.
The directive to prioritise climate action is part of a broader Labour initiative to position Britain as a leading player in clean energy. In a letter addressed to the Governor of the Bank of England, Andrew Bailey, Ms Reeves suggested a balanced approach, integrating climate objectives with economic growth and home ownership support.
However, this approach has sparked a debate. Critics, including former Bank governor Lord Mervyn King, argue that the Bank should primarily concentrate on price stability and interest rate control. Lord King has suggested that climate responsibilities might dilute these fundamental monetary duties.
Andy Bailey acknowledged the importance of addressing climate risks but noted that such actions traditionally fall outside the Bank’s main remit. Similar reservations were voiced by the House of Lords Economic Affairs Committee, which warned that the increased emphasis on net zero targets could impair the Bank’s capacity to combat inflation.
Labour counters that addressing climate risk is vital for ensuring the UK’s economic resilience against environmental challenges. By incorporating climate goals into financial policies, they argue, the nation can better protect its economic infrastructure.
To bolster these efforts, Ms Reeves has enlisted guidance from Mark Carney, a former governor known for his work on integrating climate considerations into the Bank’s agenda. Mr Carney will advise on attracting private investment and developing a national wealth fund, aimed at fortifying the financial strategies related to climate change.
The Bank of England’s stance on climate priorities shifted notably under Mr Hunt, who redefined its focus in favour of ‘productive finance’ over ‘climate change and energy security.’ This redirection led to a reduction in climate initiatives, as confirmed by Governor Bailey. Critics of the current proposal argue that reintegrating climate responsibilities could potentially weaken the Bank’s effectiveness in maintaining economic stability.
Both the Treasury and Bank of England have chosen not to comment publicly on the proposed changes. However, industry analysts observe that the Chancellor’s climate emphasis could have wider implications for financial policy throughout the UK.
Rachel Reeves’s proposal marks a significant potential shift in the Bank of England’s remit, amidst ongoing debate over its implications for economic and climate strategy.
