Vladimir Putin’s war has caused widespread destruction in Ukraine, with far-reaching economic consequences for the global community. British consumers have particularly felt the impact, as energy prices and food costs surged, exacerbating an existing cost of living crisis. However, as we approach the one-year mark since the conflict began, there are signs of improvement. Inflation is cooling, stock markets are recovering, and experts predict that power prices will soon become competitive again.
Moscow has faced international condemnation and numerous sanctions from the West, including bans on Russian oil and gas imports, financial restrictions, and actions against oligarchs. But despite this, has the economic fallout been as severe as initially anticipated?
Last June, the Organisation for Economic Co-operation and Development (OECD) predicted that the UK would experience the slowest growth among developed countries due to the “economic spill-over” from the conflict. Gabriella Dickens from Pantheon Macroeconomics stated that “the UK is still the only G7 economy not to return to pre-covid levels.”
In recent years, the UK has significantly underperformed compared to its peers. According to Pantheon’s analysis, real GDP in Q4 of last year was 0.8% lower than the same period in 2019. In contrast, Germany’s GDP was 0.1% higher, France’s grew by 1.2%, Italy’s by 1.8%, and the US’s by 5.1%. It is challenging to determine the exact impact of the Ukraine conflict on the UK’s underperformance, but it is clear that British households have been less inclined to spend money compared to other countries.
The UK has also faced political instability over the past year, with three different prime ministers taking office since the invasion. This instability has contributed to the country’s poor economic performance on the global stage, according to Ms. Dickens. Additionally, rising interest rates have a more immediate impact on households and companies in the UK than in the Eurozone, further impacting disposable income.
Soaring Energy Bills – A Temporary Setback
Prior to the Ukraine conflict, wholesale energy prices were already high due to increased demand following successive lockdowns during the pandemic. In response to Putin’s invasion, Western nations began reducing their reliance on Russian gas through sanctions and price caps. This caused wholesale prices for gas and electricity, predominantly generated using gas in the UK, to reach record highs.
Due to the chaos, fixed energy tariffs were withdrawn from the market, leaving households with variable tariffs that worsened financial strain. Ofgem, the energy regulator, repeatedly raised the price cap, quickly passing on wholesale price changes to bill payers.
Several energy suppliers went bankrupt, and there were warnings that annual household bills could surpass £5,000, leading to government intervention. Liz Truss introduced the Energy Price Guarantee, capping the average annual bill at £2,500. However, Jeremy Hunt later announced a rise in the cap to £3,000 from April 2023.
Fortunately, with a decline in wholesale prices and the world adapting to a life without Russian gas, there is hope on the horizon. European nations have prioritized stockpiling reserves of liquified natural gas to bolster supplies, and demand has decreased following a mild winter. As a result, wholesale prices have plummeted.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
