Britain’s transition to net zero could drive up inflation over the next few years, according to Bank of England policymaker Megan Greene.
Speaking in Glasgow, Ms Greene – a member of the Bank’s Monetary Policy Committee – said carbon pricing and other green policies would increase costs for households and businesses, keeping inflation elevated until at least the end of 2028.
The Bank’s own research suggests carbon pricing, which charges power plants for every tonne of CO₂ emitted, will reduce economic output while raising both energy and non-energy prices for up to three years after implementation.
Ms Greene stressed, however, that the cost of not undergoing the transition – or implementing it too late and too slowly – would ultimately be higher than the inflationary pressures created in the short term.
Inflation currently sits at 3.8%, well above the Bank’s 2% target, and is forecast to rise to 4% in September. The MPC voted last week to hold interest rates at 4%, with Ms Greene urging a “cautious approach” to future cuts given ongoing risks.
UK businesses already face some of the highest electricity prices in the developed world – around 50% higher than in Germany or France, and four times US levels – intensifying concerns about competitiveness as energy costs rise.
FTSE100
The UK's flagship share index, the FTSE 100, was 12-points at 9,226 shortly after opening this morning.
Brent crude oil futures were down 0.08% at $68.66 a barrel.
Companies reporting today
- Pennon Group - Q1 Trading Statement