31 March 2026

Bank of England must ensure transition to renewables isn’t hurt by higher rates

New report calls for central bank policy to support productive investment

London, 31 March 2026 - The Bank of England must shield renewable energy and other productive investments from its decision to keep rates higher for longer, according to a new report from research and campaign group Positive Money.

The report argues that when the Bank of England tightens monetary policy, this has a disproportionately negative impact on productive investment that relies on new cash flows, such as renewable energy, while doing less to deter borrowing for the purchase of existing assets in the expectation of future capital gains. This helps explain why higher interest rates from central banks since 2021 have particularly harmed investment in decarbonisation, which would have helped secure lower inflation today, while doing little to arrest speculative growth for assets such as crypto and AI stocks.
Analysis from Positive Money showed that in 2025 just 6.6% of new bank lending went towards productive investment in the real economy, with the vast majority of bank credit creation (85%) going towards speculative and financial activities.

To remedy this implicit bias towards more speculative lending, the report recommends that the Bank of England adopt a more conscious credit policy, which actively distinguishes between different types of credit, ensuring better support for sustainable investment in the real economy, which produces new goods and services and thus new income to repay debt. This could mean the Bank of England providing funding below market rates to lenders financing projects such as renewable energy.

The report argues that the changes of the 21st century, such as the rise of ‘shadow banking’ and new forms of money, require the Treasury to commission a review of the UK’s monetary and financial structures. Positive Money proposes that the Bank of England futureproofs monetary and financial stability by requiring banks and ‘shadow banks’ to back the money they issue with collateral pre-positioned at the central bank, rather than imposing limits on the public’s ability to use new forms of money. The Bank of England has otherwise proposed introducing holding limits for a publicly-issued digital pound as well as privately-issued stablecoins.

Arguing that the Bank shouldn’t be making these decisions in a silo, the research also calls for greater Parliamentary oversight over how the central bank allocates credit to commercial banks, with lawmakers given the opportunity to express a view on how the Bank of England treats different assets through a Preferred Asset Taxonomy.

Simon Youel, Head of Policy and Advocacy at Positive Money and author of the report, said:

“Central banks’ hiking of interest rates in response to supply-side inflation has disproportionately hindered investment in sectors like renewable energy - the same investment that would have helped deliver lower inflation today.

“With another bout of supply-side inflation coming from the US and Israel’s war on Iran, we can’t afford to make the same mistakes again.

“We need a rethink of policy in light of the challenges of the 21st century, such as new forms of money, shadow banking risks, and increasingly supply-side driven inflation. The prize would be a financial system that can both provide a safe means of payment and scale up much-needed investment in the UK economy.”

Notes:

The full report can be found here: https://www.datocms-assets.com/132494/1774883229-pm-taking-all-the-credit-future-proofing-the-future-of-money-and-credit-policy.pdf
Positive Money analysis of bank lending data (published March 2026) found that just 6.6% of new net lending in 2025 went to productive investment: https://www.datocms-assets.com/132494/1772727471-march-2026-bank-lending-research-briefing-docx.pdf
The last time the Treasury published a Monetary Policy Review was in 2013, and at the time, they pledged to publish another in 2019. As of 2026, no such Review has materialised.
For more information or to speak to a spokesperson, please contact press@positivemoney.org.uk

ENDS