As tankers carrying Russian oil, liquefied natural gas and diesel are turned away from British ports, the implications of the UK’s ban on Russian energy is only now starting to sink in.
While the impact of the Ukraine war and sanctions on Russia have already reverberated around the globe, driving commodity prices ever higher, the UK’s move to phase out Russian crude imports by the end of the year has stoked further concerns of stagflation — inflation accompanied by slower economic growth.
The British public now faces a cost-of-living crisis on an unprecedented scale, with Conservative MP Robert Jenrick saying that the UK is on track for “the most difficult year that we’ve seen in our lifetime” with an energy crisis unrivalled since the 1970s.
The government must “level with the public that standing up to Putin could cause the most difficult year for household incomes”, Mr Jenrick said.
Inflation is now expected to peak at 10 per cent, he said, amid increasing pressure on energy bills for consumers and energy-intensive industries and businesses alike.
“Household incomes could fall by a larger percentage this year than any time since records began in 1955,” Mr Jenrick said.
While the implications for household finances is monumental, there will also be a fallout for Britain’s push to hit net zero by 2050 as an energy balance is sought between the shift to renewable energy and ensuring homes and businesses can still heat their homes.
With the US also banning Russian oil and major energy firms such as Shell and BP halting new purchases, there are already growing signs of stress in the energy market. The price of oil could soar to $240 a barrel if more western nations roll out sanctions against Russian crude.
Fawad Razaqzada, market analyst at Think Markets, said the UK must now face the consequences of its decision: high gas prices coupled with even more inflation and retaliation from Russia.
The cost-of-living crunch was already very real for many Britons who were preparing themselves for rising inflation, higher energy prices and higher taxation from April 1.
Now consumers are under even more pressure as Europe and the UK seek to reduce dependence on Russian oil and gas and as trade in wheat, corn and sunflower-based products from the region is disrupted.
“Putin’s murderous attack on Ukraine changes matters for everyone that has an involvement in energy and food,” Clive Black, an analyst at Shore Capital, said. “If Putin is not to succeed and if the West is to play a part in that, then consumers in the UK and further afield should expect to pay a price.”
Mr Black adjusted his expectations for UK food inflation last week, forecasting a peak of about 5 per cent in May from previous forecasts of 3.5 per cent to 4.5 per cent in April.
Chicken producer 2 Sisters Food Group said on Wednesday that the UK was facing a major threat to food security as a result of the war in Ukraine. The company — the biggest producer of chickens in the UK — said food prices could rise by 10 per cent to 15 per cent in 2022 — the highest in 50 years — if the conflict is not resolved soon.
It is no wonder then that British consumers are more pessimistic about their financial prospects than at any time in at least a decade.
A reading of how households expect their financial situation to change over the coming year plunged by 19.3 percentage points in February to the lowest level since the index began in late 2012, a report from YouGov and the Centre for Economics and Business Research showed.
“Against a backdrop of accelerating inflation and the coming increase in the energy price cap, households are understandably nervous about the outlook for their personal finances,” said Kay Neufeld, head of forecasting and thought leadership at CEBR.