US Edition
Net zero policies are pushing up inflation and hitting economic growth, a top Bank of England policymaker has warned.
Climate change policies including carbon taxes and emissions trading schemes risk raising costs for families as companies pass the extra costs on to their customers, said Catherine Mann, a member of the interest rate-setting Monetary Policy Committee.
Economists have found “that carbon taxes, public investments, and subsidies are all inflationary”, she told an audience at the University of Oxford.
Ms Mann added: “Evidence has suggested upward pressure on inflation [and] downward effects on output.”
The warning comes at a tough time for the Bank of England and for British households, with inflation still running at 6.7pc. This is more than three times the Bank’s 2pc target. At the same time the economy is flatlining.
It comes after the Government rowed back on some of its net zero policies, delaying a ban on the sale of new petrol and diesel cars from 2030 to 2035. In September the Prime Minister also said he would delay the ban on new oil-fired boilers from 2026 to 2035, and increase grants for heat pumps.
The Bank of England itself has faced criticism for its focus on climate change, a move promoted by former governor Mark Carney in departure from its traditional role of concentrating on interest rates and the state of the banking system.
But Ms Mann hit back at this criticism on Monday, arguing the Bank’s interest in climate change and net zero policies is critical because they affect inflation.
“Not only is it within my remit to respond to the macroeconomic effects of climate change, but, in my view, my remit requires me to do so,” she said.
“When climate change has macroeconomic effects – whether physical impacts from extreme weather events and higher average temperatures or transition effects associated with transforming to a net zero economy, including explicit implications for inflation – it becomes a concern for monetary policymakers, directly within a price stability mandate.
“That applies whether the monetary policymaker’s remit includes a reference to climate change or not.”
Ms Mann, who has consistently voted for higher interest rates than the majority of the nine-strong MPC, said net zero policies affect inflation as governments seek to push businesses away from established, but polluting production methods and into new greener methods.
But this means piling extra costs onto polluting businesses “presumably to be passed on fully or in part to consumers, which prompts the behavioural change needed to reduce emissions”.
Even if consumers themselves choose to buy less polluting products, the extra demand will push up prices until companies can boost the supply of the greener goods and services, Ms Mann added.
It came as economists at investment bank Morgan Stanley predicted the Bank of England will cut interest rates from the current level of 5.25pc from May next year, in a boost to mortgage borrowers.
The Wall Street giant expects the MPC to reduce rates to 4.25pc by the end of next year as food and core goods prices ease.
Analysts also predicted that the UK will be in a technical recession by the end of the year, with the economy shrinking by 0.1pc in 2024 before growing by 1pc in 2025.
The prediction of a cut in May comes a week after the Bank of England’s chief economist Huw Pill said investors were not “unreasonable” to predict a rate cut next summer.
The Bank held interest rates at 5.25pc for the second consecutive meeting at the beginning of November, having raised them 14 consecutive times from 0.1pc in 2021.
This week, Britain will find out the latest inflation figures for October, with the consumer prices index widely expected to fall below 5pc in a boost for Rishi Sunak.
The Prime Minister promised he would halve inflation by the end of the year, meaning it needs to fall below 5.3pc.
Analysts expect a drop to 4.7pc in figures to be published on Wednesday.