Chancellor Rachel Reeves is set to urge the Bank of England to give equal importance to climate change and economic growth.
- This move reverses Jeremy Hunt’s 2023 decision to downplay climate issues in the Bank’s priorities.
- Reeves’ approach aligns with Labour’s goal to make Britain a leading clean energy nation.
- Debate arises over whether the Bank should focus on climate risks amidst inflationary concerns.
- The decision could reshape the Bank’s mandate, influencing broader financial policy.
Rachel Reeves, in her upcoming Budget, will call on the Bank of England to elevate climate change to a priority equal to economic growth. This shift seeks to overturn Jeremy Hunt’s previous decision in 2023 that downgraded the emphasis on climate issues in the Bank’s agenda. By positioning climate action alongside economic growth, Reeves aims to align the Bank’s goals with Labour’s manifesto to transform Britain into a ‘clean energy superpower’.
The letter sent to the Bank’s governor, Andrew Bailey, outlines how this reorientation will reintroduce climate considerations into the Bank’s Financial Policy Committee. The focus will not only aim for a balance between climate responsibilities and economic objectives but also promote home ownership. This strategy, however, has sparked discussions among critics who question whether the Bank should address climate-related risks when it faces immediate inflationary pressures.
Lord Mervyn King, former governor of the Bank of England, has expressed concerns, noting that focusing on climate issues is a distraction from the Bank’s primary aim of price stability. According to King, ‘The Bank of England can do nothing about climate change,’ emphasising that interest rates and inflation control should be the Bank’s central pursuits. Andrew Bailey has recognised the importance of climate risks but cautioned against expanding the Bank’s remit beyond its main responsibilities.
The House of Lords Economic Affairs Committee has also voiced similar apprehensions, warning that an increased focus on achieving net zero could undermine the Bank’s ability to manage inflation. They recommended that the Treasury should ‘prune’ the Bank’s mandate to prevent potential politicisation.
In contrast, Labour argues that managing climate risks is essential to securing long-term economic stability, as environmental factors could pose vulnerabilities to the financial system. To support this vision, Reeves has enlisted Mark Carney, former governor of the Bank, who previously pushed for the inclusion of climate risks in the Bank’s agenda, to advise on attracting private investments and forming a national wealth fund.
Under Jeremy Hunt’s leadership, the focus on climate was significantly reduced, with terms such as ‘climate change and energy security’ being replaced by ‘productive finance’ and ‘growth and competitiveness’. As a consequence, the Bank scaled back its climate initiatives and reallocated its resources, altering the approach established during Rishi Sunak’s time as Chancellor, who mentioned climate change multiple times in communications with the Bank.
With Reeves’ proposed adjustments, the Bank of England might need to juggle an expanded set of priorities, which many argue could lessen its efficiency in handling inflation and monetary policies. Although the Bank and the Treasury have refrained from commenting, analysts believe that these changes in climate focus could potentially shape policies throughout the financial sector.
Reeves’ climate-centric approach could bring significant shifts to the Bank of England’s operational focus and broader UK financial policy.
