Chancellor Rachel Reeves prioritizes climate change at the Bank of England, challenging Jeremy Hunt’s earlier stance.
- Climate change is set to regain prominence in the Bank’s Financial Policy Committee under Reeves’ directive.
- The Bank’s dual focus will include climate initiatives alongside traditional economic goals.
- Debate arises about potential conflicts with the Bank’s core mandate, particularly during inflationary periods.
- Former Governor Mervyn King and others voice concerns over the new climate emphasis.
Chancellor Rachel Reeves has emphasized the importance of climate change in her communications with the Bank of England, signaling a departure from Jeremy Hunt’s 2023 decision to reduce its priority. This adjustment repositions climate change as a critical focus within the Bank’s Financial Policy Committee, aligning with Labour’s vision to transform the UK into a ‘clean energy superpower.’ The move underscores Labour’s commitment to expedite the nation’s progress towards net zero emissions.
Reeves encourages the Bank to balance its support for economic growth with proactive climate measures. However, this broadened focus has sparked controversy among economic experts. They express apprehension regarding the Bank’s expanded role, which some believe could distract from its primary functions during inflationary times.
Former Bank of England Governor Lord Mervyn King has criticized the shift, arguing, ‘The Bank of England can do nothing about climate change,’ and suggesting that its primary role should remain centered on maintaining interest rates and inflation control. Similarly, current Governor Andrew Bailey recognizes the significance of climate risks but maintains they lie outside the Bank’s principal responsibilities.
The House of Lords Economic Affairs Committee shares these reservations, having previously cautioned that intensifying the Bank’s climate agenda might compromise its ability to effectively manage inflation. The committee recommended that the Treasury reconsider the breadth of the Bank’s mandate, warning of potential political influences affecting its operations.
In response to such critiques, Labour argues for the necessity of incorporating climate risk management within the Bank’s framework to ensure long-term economic resilience. The party points to the vulnerabilities that environmental factors pose to the financial system as justification for this approach. Reeves has also sought guidance from Mark Carney, a former Bank governor known for elevating climate issues during his term, to attract private investment and establish a national wealth fund.
Under Hunt’s tenure, the Bank shifted its focus from climate change to ‘productive finance’ and ‘growth and competitiveness,’ leading to a reduction in climate-related initiatives. Ms. Reeves’ proposed mandate may compel the Bank of England to adapt to a wider range of responsibilities, a change that some critics argue might impede its efficacy in managing core economic functions like inflation and monetary policy. While the Treasury and the Bank of England have not commented on these developments, analysts anticipate Reeves’ climate-centric approach will influence broader financial policies.
The Bank of England faces a challenging task as it navigates an expanded mandate influenced by climate concerns and traditional economic priorities.
