As Russia continues its assault on Ukraine, experts and UK politicians accepted that it would worsen the already critical cost of living.
The cost of living is already expected to soar in the months to come, but Russia’s invasion of Ukraine could put strained UK household budgets “on the hook”.
Putin’s assault on the country has pushed world nations to unleash a set of strict sanctions designed to cripple Russia’s economy, deescalate the situation and end the humanitarian crisis. But the impacts of sanctions – and the attacks on Ukraine, which exports a huge amount of essential goods – are likely to be felt closer to home too, affecting energy, food and petrol prices.
Bank of England analysts previously predicted that soaring inflation would hit seven per cent this April. However the latest developments in Eastern Europe could see UK prices hit that figure within weeks, economists warned.
It’s “hard to see how households’ real spending keeps rising,” Samuel Tombs, chief UK economist for Pantheon Macroeconomics, wrote on Twitter. The analyst revealed that he believes inflation could now peak at 8.2 per cent in April.
Households are bracing for living costs to increase in the coming months, despite hitting record highs already, when national insurance payments rise and the energy price cap is lifted to an average £2,000 annual fuel bill.
The rising costs come against a backdrop of stagnating wages and benefits for those on low incomes – set to rise just 3.1 per cent in April – failing to keep up with the real cost of daily essentials.
UK motorists are likely to be the first to notice a change in their finances as a result of the war in Ukraine, as experts warn petrol could rocket to at least £1.70 per litre.
This is because the conflict triggered a surge in oil prices, climbing above $100 dollars a barrel for the first time in nearly eight years. Russia is the second biggest exporter of crude oil in the world.
“The decisions made around Europe are absolutely going to shape the way Vladimir Putin sees this because the reality is that if we leave this to stand, you can forget petrol at £1.70 a litre,” Tom Tugendhat, chairman of the foreign affairs select committee, in parliament. “It will be significantly higher.
“And you can forget about bread at 80p, 90, £1 a loaf.
“This is absolutely going to be one of those moments where we’re going to see the cost of living crisis driven by war.”
UK food costs will likely rise too, largely because of disruption to Ukraine exports – where 10 per cent of the world’s wheat is grown – and because rising oil and fuel prices will impact manufacturers before being passed on to consumers.
Supply chain experts warned that the potential for disruption to ships in the Black Sea could hit the price of a weekly food shop too.
And while the UK only gets around three per cent of its gas supplies from Russia, the invasion sent global wholesale gas prices spiralling and will hit British fuel bills.
Around 22 million households can expect to pay an average £700 more on their annual energy costs from April, but Ofgem warned any more increases in gas costs could mean yet another £700 hike when the energy price cap is reviewed again in October.
“The UK’s dependence on gas for heating and power will leave UK bill payers on the hook for Putin’s incursion into Ukraine,” Jess Ralston, analyst for the Energy and Climate Intelligence Unit, explained.
“The government will increasingly feel the pressure to shield households in the long-term by insulating more homes, speeding the switch over to electric heat pumps and getting on with delivering the net-zero policies that will wean us off volatile gas and protect us from future crises.”
Mark Spencer, recently-appointed leader of the House of Commons, said the conflict would “clearly” impact global fuel and food prices.
Responding to MPs who challenged him on ministers’ plans to protect household finances, Spencer told the Commons: “I think it’s something that the UK government will monitor and, of course, will assist through its work to try and lessen the burden of the cost of living,” he added.