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Bank of England told to ditch green obsession as prices surge

·3-min read
Andrew Bailey - REUTERS
Andrew Bailey - REUTERS

The Bank of England has been urged to “focus on the basics of monetary ­economics” instead of climate change after warning that the City is at risk of more than £340bn of losses from global warming.

Threadneedle Street came under fire from economists and MPs for saying that banks must rapidly stop funding fossil fuel projects to prevent economic disaster and a jump in millions of consumers’ insurance and mortgage costs.

The warning, made as part of a long-planned report on climate change, came on the same day as regulators said that household energy bills are likely to rise by another £800 in October.

Critics said that an increasing interest in the green transition risks distracting the Bank from the battle to bring down inflation from its 40-year high of 9pc.

Steve Baker, Tory MP for Wycombe, said: “With inflation heading toward double digits, the electors of Wycombe need the bank to focus on the basics of monetary economics, and not start leaning into much longer term problems in areas of great controversy.”

Ruth Lea, economic adviser to Arbuthnot Banking Group, said: “Given the economic problems that this country faces, the bank’s dealing with climate change is a horrendous distraction from its core activities”.

The Bank was announcing results from a “stress test” aimed at understanding how major lenders will cope with climate change over the next 30 years. Researchers found that the cost to banks and insurers would likely be between £209bn and £334bn, depending on how quickly financial institutions act to reduce emissions.

They called on the industry to ditch its fossil fuel investments, saying it is in companies’ interests “to gradually reduce their exposures to sectors of the economy that become less economically viable as a result of the transition to net zero”.

Sam Woods, the Bank of England’s deputy governor for prudential regulation, said: “Over time climate risks will become a persistent drag on banks’ and insurers’ profitability – particularly if they don’t manage them effectively.”

It comes as the Bank of England faces questions over its failure to keep inflation close to its 2pc target, with some senior ministers questioning whether the institution should remain independent after 25 years.

The climate report estimated that overall losses at lenders would amount to an average drag of around 10pc to 15pc on profits.

Under its climate models, the Bank forecasts that failing to act on the climate would hit consumers hardest of all options, rendering houses on flood plains uninsurable and driving up mortgage costs.

A rapid shift to net zero would lead to a temporary dip in growth before recovery as the economy becomes more productive, the Bank said, while acting later would cause a deep recession in the medium term.

Mr Woods said: “The ‘no additional action’ scenario is pretty grim.

“We would see a reduction in access to lending and insurance for so-called ‘climate vulnerable’ sectors and households… homes at risk of flooding would likely become prohibitively expensive to insure or borrow against.”

Around two thirds of the British lending and insurance market participated in the report, including Barclays, HSBC, and Lloyds, as well as Aviva and L&G.

The Bank has sought to include climate risk within its core mission of tackling inflation, while continuing to acknowledge that the Government is responsible for public climate policy.

Threadneedle Street said last year that it intends to focus its corporate bond-buying programme on companies that are making progress in reducing their carbon emissions.

Mr Woods said: “Events such as the war in Ukraine and rises in energy prices illustrate the challenges banks and insurers can face from changes in their operating environment.”

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