The Bank of England should take steps to ensure that its tighter monetary policy does not undermine investment in renewable energy and other productive sectors, according to a new report by the advocacy group Positive Money.

The report argues that maintaining higher interest rates for longer can disproportionately affect investments that depend on future cash flows, such as renewable energy projects, while having less impact on borrowing used to acquire existing financial assets. As a result, the transition to a low-carbon economy could be slowed at a time when such investment is critical to long-term price stability and energy security.

Investment trends and credit allocation

Citing analysis included in the report, Positive Money found that in 2025 only 6.6% of new bank lending in the UK was directed toward productive investment in the real economy. In contrast, around 85% of credit creation was linked to speculative and financial activities.

The report suggests that this imbalance reflects structural features of the current financial system, which tends to favor asset purchases and speculative investments over financing new productive capacity, including infrastructure such as renewable energy projects.

Policy recommendations

To address this issue, the report calls on the Bank of England to adopt a more active credit policy that distinguishes between types of lending. Under this approach, the central bank would aim to better support investment that contributes directly to economic output, such as renewable energy, manufacturing, and other sectors that generate new goods and services.

One of the proposals includes the possibility of providing funding to lenders at below-market rates when they finance priority investments, including clean energy projects.

The report also argues for a broader review of the UK’s monetary and financial framework by the Treasury, citing the rise of “shadow banking” and new forms of money. It recommends requiring both banks and non-bank financial institutions to back issued money with collateral pre-positioned at the central bank.

Oversight and policy coordination

In addition, Positive Money calls for greater Parliamentary oversight of the Bank of England’s approach to credit allocation. Lawmakers, the report suggests, should have a formal role in shaping how different asset classes are treated through what it describes as a “Preferred Asset Taxonomy”.

Simon Youel, Head of Policy and Advocacy at Positive Money and author of the report, said central banks’ response to supply-side inflation through higher interest rates has unintentionally constrained investment in sectors like renewable energy—investment that could have helped reduce inflation pressures over time.

He warned that without a reassessment of monetary policy frameworks, the financial system risks continuing to favor speculative activity over long-term productive investment, potentially slowing the pace of the UK’s energy transition.

Broader context

The report comes amid ongoing debate over the impact of higher interest rates on investment and growth, particularly in capital-intensive sectors such as clean energy, which are essential to achieving decarbonisation targets. It argues that aligning monetary policy with industrial and climate objectives will be key to supporting both economic stability and the transition to a low-carbon economy.