Western Countries have now imposed punishing sanctions on Russia to try and cripple its economy and weaken its military effort over its invasion of Ukraine.
But the economic fallout could also have a major financial impact on people around the world, from the availability of food to the cost of energy and petrol. Economic experts are predicting another rise in inflation, despite the fact the cost of living is already sky high at the moment.
Because Russia is world’s biggest natural gas exporter and second-largest for oil, the stakes are high for a global economy still reliant on fossil fuels. Already petrol prices in the UK have risen and consumers have been asked not to panic buy.
Michael Strobaek, global chief investment officer at Credit Suisse, said the shock waves emanating from the Russian invasion amounted to the “dawn of a new world order” for the international economy, in which higher inflation and financial market volatility could be taken as given, reports The Guardian.
“Russia’s invasion of Ukraine marks nothing less than a shift away from the largely US/western-dominated world order that has prevailed since the fall of the Berlin Wall,” he said.
Inflation rose by 5.5 per cent in the UK this year but experts are warning it could hit close to 10 per cent in major Western economies if the cost of energy and food is pushed up by dwindling supplies cause by the Russian-Ukraine conflict, according to the Centre for Economics and Business Research.
Such a figure might encourage the US Federal Reserve or the Bank of England to increase interest rates. The idea is that when borrowing is more expensive, people will have less money to spend. As a result, they will buy fewer things, and prices will stop rising as fast.
In the UK about 2.2 million homeowners have mortgages linked to the Bank of England’s base rate would see repayments go up, putting further pressure on household budgets that are already being squeezed by the cost of living, reports The BBC.