Notes

Russia Ukraine war: how could it affect the UK economy?
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 https://pastelink.net/submit 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.


It killed at least 41 civilians, including a 15-year-old boy, wounded hundreds, and caused significant damage to civilian infrastructure, including a maternity hospital. Charles Michel, the president of the EU Council, added that Nato was “clearly embarrassed” by its inability to intervene in the conflict to help Ukraine. In the documentary, Ms Truss also admitted that the UK had not taken strong enough economic measures prior to the invasion to deter Putin.

...and a potential migration crisis
Germany has said it might need to use coal, the most polluting fossil fuel, for longer than expected, in order to free itself from gas. The conflict could push up British energy bills to £3,000 in October 2022, potentially a £600 increase from previously expected levels, according to ECIU. The UK gets just 5-6% of its gas imports from Russia, according to analysis of government data by think tank ECIU, so supplies are not likely to be so directly affected. Since Russia invaded Ukraine, British Petroleum (BP) ditched its 19.75% shareholding in Russian oil giant Rosneft. Several other fossil fuel companies including TotalEnergies, Shell, Equinor, ExxonMobil are also ceasing ventures with Russian majors. With a grave humanitarian crisis unfolding in Ukraine, some fear the war will distract from climate action.

Moscow says it cannot accept that Ukraine - a former Soviet republic with deep social and cultural ties with Russia - could one day join the Western defence alliance Nato and has demanded that this be ruled out. The bounce back in the economy in January was not just stronger than expected, it was also seen in buoyant tax revenues. These took place far away from the front lines of Russia’s war, in civilian populated areas. Russia has been backing a bloody armed rebellion in Ukraine's eastern Donbas region since 2014.
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.

Truss reveals Downing Street’s fury at Macron for keeping Putin on speed dial
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 Europe itself 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".

In addition to capturing these impacts on the UK economy forecast, there is a smaller, though significant, impact on the fiscal forecast from lower UK equity prices, which have fallen in the wake of the Russian invasion. The intensity, regularity and indiscriminate nature of Russia’s attacks may violate international humanitarian law, is extremely concerning and must stop. The Ukraine conflict prompted a further revisiting of the 2021 ‘integrated review’ into foreign, security, defence and development policy. Factory production jumped in February amid rising domestic demand, fewer raw material shortages and easing global supply chain pressures, according to the latest snapshot from IHS Markit and the Chartered Institute of Procurement and Supply (Cips).
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.

Ukraine crisis: transparency of Russian money flows in the UK
"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.


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.

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. But Russia is also reliant on revenues from fossil fuel sales, which make up around two fifths of government revenue. Over the Christmas period, Russia launched hundreds of missile and drone strikes across cities in Ukraine including Kyiv, Odesa, Kharkiv, Dnipro and Lviv. However, Russia’s invasion of Ukraine – and sanctions imposed as a response by the UK and its allies – could still have a significant impact on the UK economy. The COP talks are designed to give all countries an equal seat at the table, with anyone able to block progress, although these days few want to be perceived as great disruptors. He added that the government had "provided unprecedented support" throughout the Covid pandemic, "which has put our economy in a strong position to deal with current cost of living challenges".
If the US abandons the military alliance, it will fall to European countries to ensure a Ukrainian victory, Mr OBrien says. A prominent war expert says the US is on the verge of lessening its support for, or even withdrawing from, NATO - with potentially catastrophic consequences for Europe. The official added that budget talks are "ongoing" and have "always been based on finding a compromise" acceptable to all member states. "This is a factual paper which does not reflect the status of the ongoing negotiations. The note does not outline any specific plan relating to the [long-term EU budget] and Ukraine Facility, nor does it outline any plan relating to Hungary," it said. Moscow says it cannot accept that Ukraine - a former Soviet republic with deep social and cultural ties with Russia - could one day join the Western defence alliance Nato and has demanded that this be ruled out. When asked about these comments, Mr Wallace said Mr Lavrov was "a master at these types of engagements and making those type of comments", but that there had been no deafness or blindness in his talks with Mr Shoigu.

"The real danger is that farmers contract, they decide not to invest, they hold back from planting, and we produce less food," she said. Soaring energy costs and supply chain disruption caused by Covid have driven inflation to the highest levels in three decades. Although Russia accounts for a relatively small share of the global trade in goods, rising energy prices are expected to further push up factory costs after issues caused by Covid-19. Any disruption to flows would quickly ripple through to buyers globally, raising costs for bread and meat. Gemma Tetlow, chief economist at IfG, says that there are potential opportunities for UK producers in markets like barley, wheat and gas.
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.

The economy grew by 0.8% compared with a 0.2% contraction in December the Office for National Statistics said. The talks between Mr Wallace and Mr Shogiu were the latest in a period of frenzied diplomacy intended to defuse the current crisis in eastern Ukraine. Boone said the OECD had cut its global growth forecast for 2022 from 4.5% to 3%, while inflation in the organisation’s 38 wealthy-country members would average almost 9% – double the forecast in last December’s Economic Outlook. But his meeting with Russian defence chiefs does seem to have been a calmer affair than Thursday's frosty exchanges between the foreign ministers, Liz Truss and Sergei Lavrov. Despite limited dependence on Russian imports, surging global prices are expected to erode living standards even further.
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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