Notes

Monetary and financial stability and the invasion of Ukraine speech by Jon Cunliffe
We will continue to work with Ukraine and our international partners for a just and sustainable peace. According to reports, Russian missiles on Kyiv and Kharkiv killed at least 18 people and injured over one hundred. The devastation was felt most acutely in Kharkiv, where an apartment block was hit, killing two people, and injuring 35 residents.


These actions are likely to be felt by individual firms and investors, and potentially some sectors, but their wider impact will not be large relative to, for example, those relating to energy supply. While much commentary is focused on Russia’s energy there are several other commodities whose supply could be substantially affected by the Russia–Ukraine war, from wheat to palladium. Instead it has strengthened political consensus that domestic renewables offer the cheapest and most secure form of energy. The government is likely to face further pressure on its tentative support for onshore wind and solar. Energy efficiency – long a neglected policy area – is also back in vogue, particularly in the Treasury. There is a new target and a new taskforce, though not yet a credible plan for insulating homes.

In a sign the worst of the disruption caused by the pandemic could have peaked, companies said the number of delivery delays fell last month to the lowest since November 2020. The OECD said the UK was expected to go from the second-fastest-growing economy in the G7 group of industrial nations after Canada this year to the slowest-growing in 2023. Those standing against Mr Putin in the upcoming election, including anti-war candidate Boris Nadezhdin, have until Wednesday to gather the required number of supporters' signatures to back their campaigns. As expected, Vladimir Putin has been officially registered as a candidate for the Russian presidential election this March. However, Mr Orban's political director said this morning that Hungary was open to using the EU budget to allow further aid for Ukraine.

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"I think the whole world has got to recognise that this is not something we've faced before, we are going to see wheat price inflation levels that have never happened," she said. Last week, Boris Johnson, another former prime minister, argued that the re-election of Donald J. Trump to the White House would not be such a bad thing, so long as Mr. Trump comes around on helping Ukraine. “I simply cannot believe that Trump will ditch the Ukrainians,” Mr. Johnson wrote in a Daily Mail column that read like a personal appeal to the candidate. Britain’s economy is forecast to slow to a standstill next year as it suffers more than any other major industrial country from the effects of Russia’s invasion of Ukraine. The Russian president has intensified a crackdown on opposition since the start of his invasion of Ukraine, and this has ramped up further as the elections have approached. Prime Minister Viktor Orban has been highly critical of the EU's financial and military aid for Ukraine and has maintained close ties with Russia.


The predictions – contained in the OECD’s half-yearly economic outlook – represent a sharp downgrade from the estimated 4.7% growth this year and 2.1% next year made six months ago. Opposition leader Alexei Navalny, who has been serving prison time since 2021 after leading street protests and starting a nationwide opposition movement, was recently moved to a penal colony in Russia's far north. It's highly likely the election will see him start a new six-year term, which - if completed - would make him Russia's longest-serving ruler since the 18th century. Mr Zelenskyy has called for public officials to disclose their incomes to increase transparency and eliminate corruption as Ukraine tries to meet the stringent requirements for its bid to join the European Union. His incomings fell in 2022 as he earned less rental income from real estate he owned because of the outbreak of the war. Meanwhile, Indian thinktank Observer Research Foundation's Russia expert, Nandan Unnikrishnan, said India was unlikely to sign "any major military deal" with Russia because it would cross a red line with the US.

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Russia’s invasion of Ukraine has profoundly changed the calculus in deciding where to invest and where to cut. That means extremely difficult choices for a Treasury gearing up for retrenchment and conscious that protecting military budgets means cuts would fall even more heavily on public services, themselves in desperate need of more investment. As prime minister Boris Johnson promised to increase defence spending from an existing 2% to 2.5% of GDP; his successor Liz Truss went further by committing to 3%. This shift in approach to resourcing Russia and Ukraine is noticeable, and the UK can consider its response to the war so far a diplomatic success.


"We live in an unstable world. If rich counties fail to support vulnerable countries in tackling climate impacts and in their clean energy transition, it will only fuel a spiral of instability." However, as indicated above, if financial sanctions are extended such that they disrupt energy trade, this could lead to more profound economic impacts for the UK and other European countries. Including Gazprombank and Sberbank, another majority state-owned bank, in the SWIFT ban could further disrupt the energy trade. Many of the sanctions imposed on Russia’s financial system so far exclude transactions related to energy and agriculture. If sanctions were to go further, for example by including Gazprombank (a key bank for Russian energy conglomerates) in the SWIFT ban, European countries may have difficulty paying Russian firms for gas, which could result in a reduction in supply.


But European governments could go further and force non-critical industries to shut down or mandate a reduction in use of gas in commercial/office buildings and homes. In a scenario where there is relatively little disruption to energy supplies, the main impact on the UK and other European economies is comes from uncertainty on gas prices. So far gas has continued to flow from Russia to Europe (including via Ukraine) during the conflict, though wholesale prices have increased significantly. The UK imported around 13% of its total fuel (oil, gas, LNG, electricity) from Russia in 2019.


After 2,000 anti-tank weapons were delivered last week and 30 British troops arrived to teach Ukrainian forces how to use them, the phrase "God Save the Queen" began trending on Twitter in Ukraine. Some bars and restaurants in Kyiv were offering free drinks to anyone who had a UK passport. But his remark lives on as a challenge to all policymakers thinking about whether to engage diplomatically - and even militarily - in a potential conflict between two foreign countries. It's promising to deploy British forces to eastern European members of the Nato military alliance if Russian troops cross Ukraine's borders. After its botched start, Homes for Ukraine has been an effective model for accommodating large numbers of refugees (more than 110,000 as of January 2023) while defusing the political tension that characterises other asylum policy.

Nato powers are already promising to build up their own forces in the alliance's eastern flank. But when asked about the state of UK-Russia relations, Mr Wallace said they were "a lot better than 0%" after Friday's talks. Another risk is that Sunak’s can-kicking over budgets postpones the serious investment needed in military supplies.
Unnamed Indian government sources have suggested India wants to distance itself from Russia, according to Reuters news agency. Mr Szijarto will be in the western Ukrainian city of Uzhhorod with his Ukrainian counterpart Dmytro Kuleba and presidential chief of staff Andriy Yermak. "The nightmare scenario would be that the states close to Russia double down on aid to Ukraine while those farther west decide to force a deal on Putin's terms. Then https://richard-andresen.hubstack.net/how-russia-attacked-ukraine-and-what-happens-next-the-new-york-times could fracture," he says. He says Europe is rich enough to do so if it has the political will, pointing to a recent report from the Estonian Ministry of Defence suggesting that committing 0.25% of GDP annually towards Ukraine would provide "more than sufficient resources".

I offer my condolences and that of the UK to all Ukrainians for the lives lost due to these barbaric airstrikes. In line with the spirit of that pre-Russian invasion period, the original document was titled “Global Britain in a competitive age”. There is also expected to be a considerable jump in the prices we pay at the supermarket and petrol pump. By restricting Russia’s access to much of its $600–700bn in foreign exchange reserves, this move significantly limits the central bank’s ability to stabilise the rouble as it had done in response to the initial sanctions.
Hungary previously said it would block further financial aid to Ukraine, but this morning suggested it was ready to compromise after the EU reportedly drew up plans to hit Budapest's economy. Hungary has signalled it is ready to compromise on EU funding for Ukraine - after Brussels reportedly prepared to sabotage its economy if it did not comply. Meanwhile, Moscow has claimed its forces have taken control of the village of Tabaivka in Ukraine's northeastern Kharkiv region. "I was clear about the tragic consequences that any invasion of Ukraine could have for all people - both Ukrainian, Russian and the security of Europe," Mr Wallace said of his meeting with the Russian defence minister. If Russia did decide to invade Ukraine, the senior Western intelligence official said large numbers of people would be displaced.

In the most disruptive scenario Russia could turn off its supply of natural gas to Europe. The CEBR predicts that inflation will now peak at 8.7% next quarter and then stay twice as high as expected until the second half of 2023. The UK does not have significant direct trade links with either Russia or Ukraine, so our economy’s most direct exposure to Russia’s invasion of Ukraine is via its impact on the global price of energy. The UK’s total energy demand fell by 22 per cent between 2000 and 2019, reflecting both a shift away from more energy-intensive industries and improvements in economy-wide energy efficiency. In a scenario where there is relatively little disruption to energy supplies, the main impact on the UK and other European economies is comes from uncertainty on gas prices.
All of this disruption could massively increase the price of gas in Europe and, consequently, the UK. But we now see more clearly that, in a crisis, for the foreseeable future UK interests are aligned with the US and Europe, especially if China aligns itself more with Russia. The revival of NATO’s purpose and a unified western response have been a necessary if painful reminder of where UK interests truly lie. One risk is that leaks and arguments about the size of the army, military procurement and GDP percentages distract from a serious reckoning on what a new war in Europe means for the post-Cold War ‘peace dividend’ that has benefited us all.

Here's my website: https://richard-andresen.hubstack.net/how-russia-attacked-ukraine-and-what-happens-next-the-new-york-times