Chancellor Rishi Sunak has said that the Russian invasion of Ukraine will culminate in major uncertainty for the UK economy.
The UK economy grew by 0.8 per cent in January 2022 according to the Office for National Statistics, as the country recovered from the effects of the Omicron variant of Covid. Wholesale, retail, restaurants and takeaways all enjoyed strong performances, while construction and manufacturing both saw growth in spite of ongoing supply chain woes, which continued to impact other industries.
However, the knock-on effect of the war in Ukraine on already rising living costs will fuel the risk of an economic contraction according to analysts, with the chancellor warning of the same.
Energy and food prices were already on the increase before Russia launched its military offensive in Ukraine, and Suren Thiru of the British Chambers of Commerce said that the invasion has only exacerbated the “already acute inflationary squeeze on consumers and businesses”.
Paul Dales, chief UK economist at Capital Economics, separately suggested that January’s economic growth would likely be “as good as it gets for the year” and that economic stimulation “will probably slow” throughout 2022.
Meanwhile, the chancellor conceded that the situation in Ukraine is “creating significant economic uncertainty”, while stressing that the UK was dutybound to “stand with the people of Ukraine to uphold our shared values of freedom and democracy and ensure Putin fails”.
Referring to the financial squeeze on British households, Sunak said that the government had stepped in with “unprecedented support” measures through the Covid-19 pandemic, which “put our economy in a strong position to deal with the current cost of living challenges”.
Pat McFadden, Labour’s shadow chief secretary to the Treasury, urged the government to postpone the planned National Insurance increase set to enter force next month, to help households in the face of what would be “a year of surging inflation, weak earnings growth and tax rises”.
McFadden also asked ministers to “look again” at the idea of a windfall tax on oil and gas companies to help subsidise household energy bills.
Elsewhere, Dales said that analysts’ expectations are that the Bank of England will raise interest rates once more as its Monetary Policy Committee meets again next Thursday.
Interest rates are predicted to be upped from 0.5 per cent to 0.75 per cent.
Image taken from Wikimedia Commons
