Economic Impacts of the War in Ukraine on the UK: Analysis and Responses

This essay analyzes the economic impacts of the war in Ukraine on the UK and recommends major economic responses by the government and the Bank of England. It also discusses the indirect effects of the conflict on the UK's economy and potential remedies.

Contemporary
Business Environment

EXECUTIVE SUMMARY
The world economy, which is only just beginning to emerge from the hardship of the
coronavirus outbreak, will apparently be significantly impacted by the continuing confrontation
involving Russia and Ukraine war crisis. Through the enumeration of the significant impact of such
an issue, this essay will thereby highlight the spill-over effects upon the economy of UK. The
repercussions in regards to the financial aspects will determine the actual position of trade thereby.
The elucidation of suitable ramifications will also prove to be an aid to connote the actions that can

Table of Contents
INTRODUCTION.........................................................................................................................4
Discussion and Analysis............................................................................................................4
Economic Impacts of the War in Ukraine on the UK..................................................................4
Major Recommended Economic Responses of the UK’s Government and their Implications. .5
Major Responses of the Bank of England and Their Implications to the UK’s Economy..........7
CONCLUSION..............................................................................................................................8
REFERENCES..............................................................................................................................9

INTRODUCTION
The extent of limitations and economic instability, as well as the length and severity of
any fight, will define the war's economic effects. Here is a breakdown of how trade interruption
might affect the UK. This size of conflict includes enormous geopolitical risk, which might
obstruct economic progress by itself (Adekoya, Oliyide and Yaya, 2022). Nevertheless, the
Russian invasion of Ukraine and the responses taken by the UK as well as its associates may still
have a significant impact on the UK economy. It has been determined that persistent decreases in
industrial output, employment, and international trade are caused by high geopolitical risk. As a
result, the focus of this essay will be on the crucial aspects of the war's effects on the UK's
economic situation, as well as their consequences and prospective remedies.
Discussion and Analysis
Economic Impacts of the War in Ukraine on the UK
Russian and British businesses seldom ever interact directly. Given the size of each country's
economies, commerce between both Russia and the global financial system is not particularly
intertwined and is also not very large. Only 0.7% of the UK's services and goods are exported to
Russia, but 1.5% of its purchases come from there. Electronics, production, and autos constitute
the majority of British exports to Russia. The majority of Russia's imports to the UK in 2022, the
most recent year for which data is available and untouched by the crisis, consisted of petroleum
products, rare metals, and other energy-related items. (Bronk and Watling, 2022). The likelihood
that the dispute may harm trade is increased by four factors:
 MNCs are now leaving Russia in regards to the stresses over their notorieties and the
difficulties welcomed on by progressing and forthcoming authorizations. Huge
corporations like General Motors and Volvo already practice this. Russian businesses and
individuals will find it much more difficult to import goods as a result of the rapid
depreciation of the rubble, which will ultimately lead to a decline in investment in
particular.
 Businesses will face logistical challenges when sending goods to and from Russia.
Shipping giants only transport the essentials like foodstuffs, medication, and foreign
relief. A restriction on all freight reservations to and from the nation has already been

issued by Maersk and MSC, for instance. This prohibition applies to all ports of entrance
and exit, such as those at terminals along the Baltic and Black Seas and also in Far
Eastern Russia. (Elsherbiny, 2022).
 Worldwide exchanges are very difficult because of monetary punishments, which
additionally keep a few Russian banks from utilizing the Quick cash transmission
framework. Exports of "double use" items and advances to Russia are disallowed, and the
authorizations can be extended moreover.
The accumulation of these items will definitely result in a large decrease in Russia's trade
volumes, particularly imports. The economy of the country won't be suggestively wedged by the
lack of direct linkages connecting Russia and the UK. The indirect effects of increased prices and
heightened instability in resources, especially the energy industry, may put the UK in a
considerably worse situation (Fazal, 2022).
Major Recommended Economic Responses of the UK’s Government and their Implications
Russia's annexation of Ukraine is anticipated to have the greatest impact on Britain's
economy of any significant industrial nation upcoming, causing it to grind to a standstill. The
figures demonstrate that the UK was suffering from a multitude of factors, including higher
interest rates, higher taxes, lower commerce, and significantly more expensive energy. As a
result, the UK government can think about taking some economic action to lessen the negative
effects of the prolonged conflicts (Kazatchkine, 2022).
Upsurge in Nation’s Gas Production – The UK expanded natural gas production by 26% this
year as Europe struggled with an energy crisis brought on by Russian limitations on gas pipeline
shipments. As according official figures, the UK increased its natural supply of gas to Europe's
warehouses all through the Ukraine Crisis. Due to Russia breaking off gas exports to the region,
where even the cost of goods has increased to all-time peaks, the region is presently undergoing
an energy crisis. According to Offshore Energies UK, in June the nation severed all ties with
Russia in the energy sector and ceased importing any petroleum, gasoline, or fuel from it. The
supply will be under more pressure as a result (Kovoor and et. al., 2022). European nations are
scrambling to find alternatives to Russian gas. In order to have enough supply for the colder
months, they are attempting to obtain supplies from a number of sources, one of which being the
UK, a relatively small exporter. Over through the summer, the UK had the capacity to supply its

European neighbours with additional natural gas; however, given the country's current scarcity in
the winter, this is unlikely to occur. Market watchers believe that it will probably need to buy gas
from Norway in order to meet the requirement for it throughout the winter.
Introduce Small Business Support Schemes – If they are just starting up or looking to grow, the
young businesses can obtain a much-needed boost from loans of up to £25,000. For more details
on various small business loan possibilities, go to the Finance Hub of the British Business Bank.
With funding and collaborative research, innovative techniques, UK assists companies in
advancing and comprehending the potential of new ideas. (Magill and Rees, 2022). The
entrepreneurs' access to data, resources, and markets through their knowledge transfer network
allows them to commercialize the proposed idea. Tech Nation is another government-sponsored
initiative that provides online courses for free to help people improve their digital skills as well
as incentives for UK tech enterprises.
Increase Public Spending – The UK government plays a vital role in addressing the economic
recession and its implications for the economy as a consequence of the ongoing condition of the
struggle by promoting investment to encourage business restoration. (Osička and Černoch,
2022). Given the amount of money invested in this area, it is imperative for policymakers to
determine whether their initiatives are actually promoting economic growth. There is a
considerable likelihood that tax hikes will partially offset the effects of rising government
spending, keeping aggregate demand at its current level (AD). It is possible, nevertheless, that
increased spending and taxation will boost the UK's GDP. The extra spending by the government
could have a multiplying impact. The destitute will have more funds to spend if state intervention
results in additional jobs, which would also boost consumer spending. Federal spending may
lead to a bigger overall growth in GDP than the initial infusion when the economy is confronted
with these areas of overcapacity.
Increment of Universal Credit – The introduction of universal credit and a range of those other
entitlements would culminate in pay increases for millions of UK workers. It happens because
the first of full payment totalling £650 that will be sent to more than eight million families begins
to arrive. (Pandey, 2022). Even with cost-of-living allowances, the rising price of petroleum,
gasoline, and grocery products has already made things difficult for many people. Beginning on
September 26, 2022, the Administration Earnings Threshold (AET) will rise from £355 to £494
for a single claimant and from £567 to £782 for a couple. An examination of the earnings

reported by claimants on the UC caseload between April and June 2021 indicated that the extent
of the AET rise would result in about 17% of the Light Touch caseload moving to Intensive
Work Search. The DWP kept a tonne of administrative data for this study's administration of the
benefit.
Major Responses of the Bank of England and Their Implications to the UK’s Economy
The Bank of England's job is to assist UK families and businesses in navigating a
possibly severe but brief economic catastrophe (Simmons and Culkin, 2022). The three specific
departments of the bank have detailed a thorough and timely package of initiatives to aid UK
businesses and citizens in navigating the expected damage to the economy brought on by the
conflict's consequences. These steps will ensure that businesses continue to operate efficiently,
that individuals are employed and that a brief disruption won't have such a long-term detrimental
impact on the country's economy. The well-informed advice in this regard can also be taken into
consideration.
Enhance the banking reserve requirement – One of the three tools the Federal Reserve employs
to implement macroeconomic stimulus is bank reserves. However, the Federal has rarely used
modifications to reserve criteria in recent years to carry out monetary policy because open
economic transactions are a much more accurate tool. A higher effective tax rate on deposit
services brought on by the UK banks' enhanced reserve requirements will lower the amount of
financial intermediation performed by banks. If additional action is not taken, the number of
loans that can be maintained by a certain stage of reserves will decrease, the money supply will
be drained, and the cost of credit would rise. (Sun and Zhang, 2022).
Sustenance of Government Bonds – Distribute revenue to the state in the form of a government
bond in exchange for an agreed-upon interest rate is the major connotation of this measure. This
kind of investment is dependent on debt. Investors can utilise that money to earn a fixed return
paid on a recurrent basis in exchange for funding infrastructure or new projects. Interest rates
have a substantial impact on the demand for bonds (Sun, Song and Zhang, 2022). If interest rates
are lower than the coupon rate, demand for bonds is anticipated to rise since they represent a
profitable investment. However, if interest rates rise above the bond's coupon rate, demand may
decrease. The UK's banks might consider engaging in government bond commodity derivatives
to speculate on interest rates or to hedge against volatility and interest rates fluctuations.

CONCLUSION
Thus, it may be concluded that any interruption in the energy supply will cause
disturbance as compared to what direct trade connections would indicate, Europe will have a
bigger effect on UK competitive rates. Gas prices in the UK and Europe were synchronized in
2022. Owing to merchants buying gas in the UK prior transporting it to Europe to prevent
increased costs there, overall supplies in the UK is reduced, and prices in Europe increase until
they become equivalent. Due to increasing demand across Europe, a stoppage in Russian gas
exports to certain other European nations also would raise the prices in other markets that the UK
utilizes, including that of the areas of Norway. Moreover, regardless of the short-, medium-, or
long-term effects of the battle, it is probable that firms and consumers around the world,
including those in the UK, will postpone purchases out of concern for the worse, prolonging the
pandemic recovery as a whole.

REFERENCES
Books and Journals
Adekoya, O., Oliyide, J.A. and Yaya, O.S., 2022. Does Oil Connect Differently with Prominent
Assets During War? Evidence from Intra-Day Data During the Russia-Ukraine Saga.
Evidence from Intra-Day Data During the Russia-Ukraine Saga.
Bronk, J. and Watling, J., 2022. Necessary Heresies: Challenging the Narratives Distorting
Contemporary UK Defence. Routledge.
Elsherbiny, A., 2022. Europe on Fire: the Russo-Ukrainian War, Its Causes and Consequences.
Its Causes and Consequences (March 7, 2022).
Fazal, T.M., 2022. The Return of Conquest?: Why the Future of Global Order Hinges on
Ukraine. Foreign Aff., 101, p.20.
Kazatchkine, M., 2022. Ukrainian war: an economic crisis in Eastern Europe and Central Asia
will lead to a health crisis. bmj, 376.
Kovoor, J.G., and et. al., 2022. COVID-19 and the Ukraine–Russia conflict: warnings from
history. British Journal of Surgery.
Magill, P. and Rees, W., 2022. UK Defence Policy After Ukraine: Revisiting the Integrated
Review. Survival, 64(3), pp.87-102.
Osička, J. and Černoch, F., 2022. European energy politics after Ukraine: The road ahead.
Energy Research & Social Science, 91, p.102757.
Pandey, D.K., 2022. Does the Russia-Ukraine War Lead to Currency Asymmetries? A Us Dollar
Tale.
Simmons, R.D. and Culkin, N., 2022. Main Course–Shocks, Trade, and Growth. In Covid, Brexit
and The Anglosphere (pp. 91-106). Emerald Publishing Limited.
Sun, M. and Zhang, C., 2022. Comprehensive analysis of global stock market reactions to the
Russia-Ukraine war. Applied Economics Letters, pp.1-8.
Sun, M., Song, H. and Zhang, C., 2022. The effects of 2022 Russian invasion of Ukraine on
global stock markets: An event study approach. Available at SSRN 4051987.
Timmer, A., and et al., 2022. Violent conflict in contemporary Europe: specifying the
relationship between war exposure and interpersonal violence in a war-weary country.
The British Journal of Criminology.
Zakeri, B., and et. al., 2022. Energy Transitions in Europe–Role of Natural Gas in Electricity
Prices. Available at SSRN.