Russia’s war with Ukraine will deal a £90bn blow to the UK economy driven by a worsening cost of living crunch sending the British consumer into retreat, reveals fresh forecasts published today.
Soaring energy prices as a result of Moscow sending troops in Ukraine will feed already historic high inflation in Britain, heaping even further pressure on households across the country, according to fresh forecasts by the Centre for Economics and Business Research (CEBR).
A ratcheting up in the cost of living will deliver a £2,550 hit to each household in Britain.
The scale of lost output as a result of the conflict – around four per cent – is about the same wiped out due to Brexit.
Households were already facing a once-in-a-generation hit to their living standards, generated by a combination of rampant inflation and steep tax hikes.
However, the conflict has led experts to warn Brits will absorb one of the harshest blows to their finances in peacetime.
The CEBR estimates living standards in the UK will drop at the worst rate since records began in the mid-1950s.
A pullback in consumer spending, which generates around 60 per cent of output in the UK, caused by households’ budgets being squeezed will shave over two percentage points off economic growth this year.
Worryingly, the cost of living will stay above seven per cent until the beginning of next year, resulting in the UK economy posting zero growth over the whole of 2023, the CEBR said.
Moscow’s invasion of Ukraine has sent energy prices skyrocketing due to fears supplies could be sucked out of the market as a result of disruption caused by the war and the Kremlin hitting back at Western sanctions.
Yesterday, gas prices hit £8 per therm, driven by the US and European countries mulling banning imports of Russian energy.
Just last year, it cost around 40p to buy gas.
Elevated inflation and weaker growth will cause a headache for Chancellor Rishi Sunak, who is preparing to deliver a spring statement on 23 March.
A large proportion of the UK’s stock of debt rises in line with the retail price index – an old measure of price increases – meaning the government’s debt interest bill will swell if the CEBR’s forecasts materialise.
Poorer growth will also choke tax receipts, resulting in the government having less fiscal wriggle room to deliver on promised tax cuts in the run up to the next election.
The UK’s debt interest bill has already hit its highest level ever for a January, according to the Office for National Statistics.