In its latest monetary policy report, released alongside a small rate cut to 4%, the Bank of England recognised that inflation could rise if climate change leads to severe weather that acts as an obstacle to food production.
A coalition of ten campaign groups is urging the Bank of England to take stronger action on the climate crisis, marking ten years since former governor Mark Carney first warned about the risk of ignoring long-term climate threats.
Back in 2015, Carney, who is now Canada’s prime minister, gave a speech at Lloyd’s of London. He said that politicians and policymakers often focus on short-term goals, which makes it difficult to address the climate emergency, even though it seriously threatens global financial stability.
He emphasized that the science and the structure of financial systems both suggest climate change will ultimately undermine financial resilience and long-term prosperity. Although there’s still time to act, the opportunity is shrinking fast.
A decade later, organizations like Greenpeace, WWF, the New Economics Foundation, and Positive Money have joined forces. They are urging the Bank of England to be more proactive, especially by reviewing its monetary policy to reflect the growing impact of climate-related events, such as events that increase the food prices.
Some economists are arguing that central banks should be open to higher inflation for a limited period, or that governments should create reserves of staple foods to help manage the effects of more frequent droughts and floods.
The campaigners warn that raising interest rates in response to climate-driven price rises could make it even more expensive to fund the large investments needed to reduce the dependency on fossil fuels. The UK recently experienced its worst inflation crisis in 40 years, caused by an increase in fossil fuel prices and supply chain issues. These were problems that existing monetary policies struggled to solve.
A spokesperson for the Bank of England responded by pointing out that while climate policy is mainly the government’s responsibility, the Bank’s mandate does include acting on climate risks that threaten its objectives.
In its latest monetary policy report, released alongside a small rate cut to 4%, the Bank recognized that inflation could rise if climate change leads to severe weather that acts as an obstacle to food production.
The Bank of England voted for a fifth cut in interest rates, as it has cautioned that increasing food prices could lead to inflation reaching 4%.
The Bank of England’s Monetary Policy Committee (MPC) has voted for one of the closest decisions since its independence, more than 25 years ago, stating that it wants a 5-4 vote in favour of reducing the key base rate by a quarter point to 4 percent.
The move, which brings borrowing costs to the lowest level since March 2023, was widely anticipated by the market. However, the decision was a tight call, with the rate-setting committee for the first time in history holding two votes before coming to an agreement.
The coalition also wants the Bank to ensure that climate risks are properly reflected in banking regulations that determine how much capital banks must keep on hand. They are also pushing for the Bank to stop accepting fossil fuel-related assets as collateral for loans.
Labour has pledged to reverse a Conservative policy that stopped the Bank of England from taking into account the effects of the climate crisis in its mandate.
In a letter late last year, Bank governor Andrew Bailey reassured the new chancellor, Rachel Reeves, that the Prudential Regulation Authority will keep considering how climate risks could affect the stability of the financial system.
Since taking office in Ottawa, Carney has cancelled Canada’s carbon tax and shown support for more gas production. This marks a clear change from his earlier position against fossil fuels.