The Bank of England must protect renewable energy investment from prolonged higher interest rates, a report by Positive Money says.
The research group said tighter monetary policy disproportionately harms productive investment reliant on new cash flows, such as renewables, while doing less to curb borrowing for speculative assets.
Positive Money added that in 2025 only 6.6% of new bank lending went to productive investment, while 85% flowed into speculative and financial activities.
The report recommends the Bank adopt a more active credit policy that distinguishes between types of lending and supports sustainable investment in the real economy.
It suggests measures including providing funding below market rates to lenders backing projects such as renewable energy.
The report also calls for a Treasury-led review of the UK’s monetary and financial system to reflect changes such as shadow banking and new forms of money.
It proposes requiring banks and shadow banks to back issued money with collateral held at the central bank rather than limiting use of new forms of money.
The research further urges greater Parliamentary oversight of how the Bank allocates credit, including through a Preferred Asset Taxonomy.
“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,” said Simon Youel, head of policy and advocacy at Positive Money.
“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.