Bank of England faces renewed calls to step up climate crisis action

The Bank of England is under mounting pressure from environmental groups to ramp up its response to the climate crisis, as campaigners mark ten years since Mark Carney’s landmark speech warning of the risks posed by short term policy horizons. Carney, who served as the Bank’s governor in 2015 and is now prime minister of Canada, cautioned that climate change represents a looming threat to the financial system and economic prosperity, with the window for decisive action narrowing each year.

Ten years on, organisations including Greenpeace, WWF, the New Economics Foundation, and Positive Money have signed a new briefing that urges the Bank to take more robust steps. The coalition is calling for a comprehensive review of monetary policy, emphasising the growing frequency of climate related shocks that feed through to inflation, most recently observed in rising food prices triggered by extreme weather events. These groups argue that the Bank’s traditional approach, focused on raising interest rates to counter inflation, risks making the necessary transition away from fossil fuels costlier by increasing the cost of public investment.

The recent inflationary crisis, described as the worst in four decades, was largely caused by fossil fuel price spikes and supply chain disruptions. The briefing contends that the Bank’s standard policy tools are ill equipped to cope with such climate driven shocks. Some economists have even suggested that central banks might need to tolerate higher inflation temporarily or consider building up strategic reserves of staple foods to buffer against future price surges.

Current monetary policy acknowledges the risks. Following a recent quarter point interest rate cut to 4 percent, the Bank’s latest report noted the potential for extreme weather to drive up food prices, presenting an ongoing upside risk to inflation. A Bank spokesperson has maintained that while government sets climate policy, addressing climate related threats remains integral to its remit, and the institution is working accordingly.

The environmental coalition is also urging the Bank to factor climate risks into banking capital requirements and to reconsider accepting fossil fuel linked assets as collateral in lending operations—a move recently announced by the European Central Bank as it began reflecting climate uncertainties in its asset valuations.

Political shifts could shape the Bank’s future stance. The Labour Party, in its latest manifesto, has pledged to reverse previous restrictions preventing the Bank from actively incorporating climate risks within its mandate. Bank governor Andrew Bailey has recently assured the chancellor that the Prudential Regulation Authority would continue to scrutinise how climate change could affect financial stability.

Carney’s legacy, while debated, remains influential. Since entering office in Ottawa, he has reversed Canada’s carbon tax and supported increased gas production, despite his previous advocacy for decisive climate action. The coming months are likely to be pivotal as pressure builds on the Bank of England to take bolder, more innovative action in ensuring financial resilience in the face of accelerating climate risks.