Economic Impacts of the War in Ukraine on the UK

This essay analyzes the economic impacts of the war in Ukraine on the UK, including the effects on UK-Russia trade and global gas prices. It also provides major recommended economic responses of the UK’s government and the Bank of England. The essay suggests that any interruption in electricity generation to Europe will have a higher impact on discounted rates within the UK than would have been anticipated from direct trade linkages. The conflict is likely to cause businesses and customers around the globe, such as those in the UK, to put off spending out of fear for the worst, delaying the pandemic's overall restoration.

Contemporary
Business Environment

Executive Summary
The international market, which is just now beginning to heal from the pressure and
strain of the coronavirus, will reportedly be significantly impacted by the protracted conflict
between Russia and Ukraine, as according to the estimates. This essay will demonstrate how
such a problem has repercussions for the UK's economy by listing its substantial
implications. The effects on the financial front will decide the actual position of trade as a
result. The clarification of appropriate implications will also serve as a guide for the officials
as they consider what steps to take to get back on course.

Table of Contents
1. Introduction...................................................................................................................................4
2. Discussion and Analysis................................................................................................................4
2.1. Economic Impacts of the War in Ukraine on the UK.............................................................4
2.1.1. UK-Russia Trade...........................................................................................................4
2.1.2. Global Gas Prices...........................................................................................................4
2.2. Major Recommended Economic Responses of the UK’s Government and their Implications.
5
2.2.1. Increase in Country’s Gas Production............................................................................5
2.2.2. Increment of Universal Credit........................................................................................6
2.2.3. Increase Public Spending...............................................................................................6
2.2.4. Introduce Small Business Support Schemes..................................................................6
2.3. Major Responses of the Bank of England and Their Implications to the UK’s Economy......7
2.3.1. Increase the Reserve-Ratio for Banks............................................................................7
2.3.2. Sustenance of Government Bonds.................................................................................7
3. Conclusion.....................................................................................................................................8
4. References.....................................................................................................................................9

1. Introduction
The magnitude of restrictions and economic instability, along with the duration and
intensity of any conflict, will determine the economic impacts of the war. Here is a
breakdown of how the UK would be impacted by a trade disruption. This size of battle carries
significant geopolitical risk, which by itself could impede economic advancement. However,
the Russian invasion of Ukraine and the responses taken the UK economy may continue to be
significantly impacted by actions taken by the country and its supporters. (Butler-Blondel,
2022). High levels of geopolitical risk have been found to be the root cause of ongoing
declines in industrial output, employment, and global trade. This essay will therefore
concentrate on the key elements of the war's consequences on the UK's economic situation, as
well as their significances and the potential scope of recommendations thereby provided.
2. Discussion and Analysis
2.1. Economic Impacts of the War in Ukraine on the UK
Business interactions between Russia and the UK are quite infrequent. Given the size of
each country's economies, trade between Russia and the global financial system is not
particularly intertwined and is also not very large. Despite only exporting 0.7% of its
merchandise and services to Russia, the UK makes 1.5% of its imports from that country. The
majority of British sales to Russia are in the fields of industry, telecommunications, and
automobiles. The most recent year for which data is both available and unaffected by the
incidence is 2022. the preponderance of Russia's imports to the UK were made up of precious
metals, oil, and petroleum products (Charlton-Czaplicki and Hukal, 2022). The following
factors make it more likely that the conflict will affect the trade between the two:
2.1.1. UK-Russia Trade
Following the Russian invasion of Ukraine as well as the ensuing economic sanctions
against imports from Russia that went into effect in March 2022, imports of goods from
Russia have significantly decreased. The total value of goods imported from Russia in June
2022 was £33 million, which was the least since records first started being maintained in
January 1997. This reflects a 96.6% decrease from the monthly average shipments in the
twelve months prior to February 2022. (Chornyi, 2022),

2.1.2. Global Gas Prices
February 2021 saw a gas price of 38p per therm in the UK (a measurement of gas
consumption). This month, it jumped to 537p per therm. Operational cost of gas was 38p per
thermos in the UK in February 2021. It increased to 537p per therm this month. Gas prices on
international markets can also rise as a result of speculation and worry about impending
disruption. Gas prices for both homes and businesses may rise as a result (Fazal, 2022).
The collection of these commodities will undoubtedly cause Russia's trade volumes,
especially imports, to significantly decline. The absence of direct connections between Russia
and the UK will not have a big impact on the UK economy. The indirect consequences of
rising costs and increased resource instability, particularly in the energy sector, could make
things even worse for the UK.
2.2. Major Recommended Economic Responses of the UK’s Government
and their Implications.
Russia's incursion of Ukraine is anticipated to have the most severe negative effects on
Britain's economic conditions in regards to any major industrialised economy next year,
bringing it to a complete halt. The statistics show that a variety of issues, such as rising
interest rates, more taxes, decreased commerce, and noticeably more expensive energy, were
negatively affecting the UK (Forhad and Alam, 2022). In order to alleviate the detrimental
effects of the protracted conflicts, the UK government can thus consider taking significant
aggressive actions.
2.2.1. Increase in Country’s Gas Production
This year, as Europe grappled with a fuel crisis brought on by Russian restrictions on gas
pipeline supplies, the UK increased oil and gas production by 26%. According to official
figures, the UK raised the amount of natural gas it sends to warehouses throughout
the European Union. throughout the Ukraine Combat. Due to Russia cutting off gas supplies
to the region, where the cost of goods has increased to all-time highs, the continent is
currently experiencing an energy crisis. The country allegedly detached severance in regards
to all energy-related links with Russia and ceasing to purchase any lignite, gasoline, or
petroleum from it as of June, according to Offshore Energies UK. As a result, there will be
increased demand on the supply (Gourd, 2022). Finding alternatives to Russian gas is a top
priority for European countries. They are striving to get supplies from a number of places,
one of which is the UK, a very modest exporter, in order to have enough supply for the colder

months. The UK was able to supply more natural gas to its neighbours in Europe during the
summer, but it is unlikely that this will happen now that the country is experiencing a
wintertime shortage. In order to meet the need for it throughout the winter, according to
market observers, it will likely need to purchase gas from Norway.
2.2.2. Increment of Universal Credit
Loans of up to £25,000 can give new businesses a much-needed boost if they are just
getting started or looking to expand. For more details on various small business loan
possibilities, go to the Finance Hub of the British Business Bank. By providing money and
encouraging team research, Innovate UK helps businesses explore and comprehend the
potential of new ideas. Through this network of knowledge transfer, the entrepreneurs have
access to information, resources, and markets that enable them to commercialise the
suggested idea (Kordan, 2022). Another government-sponsored programme, Tech Nation,
offers free online courses to help people improve their digital literacy as well as incentives
for UK tech companies. The UK's modern economy is thoroughly outlined in Tech Nation's
Data Commons for UK Tech, which also serves as a valuable resource for industry
information and analysis.
2.2.3. Increase Public Spending
The UK government contributes significantly to the response to the financial slump and
its effects on the economy due to the protracted nature of the conflict by increasing
expenditure to promote economic recovery. Legislators must ascertain whether their
measures are genuinely fostering economic growth given the amount of money committed in
this sector. It's highly likely that tax increases will partially offset the effects of growing
government spending, maintaining current levels of aggregate demand (AD). Nevertheless,
it's feasible that higher taxes and expenditure will raise the UK's GDP. The extra spending by
the government could have a multiplying impact (Morgan, 2022). The aggregate demand
would rise even higher if government expenditure increased employment since the jobless
can have more funds to spend. When the economy is faced with these overcapacity sectors,
federal spending may result in a greater total gain in GDP than the initial influx.
2.2.4. Introduce Small Business Support Schemes
A variety of other benefits, including the expansion of universal credit, will result in pay
increases for millions of UK workers. It occurs when the first of two payments computing
around £650, which will be sent to more than eight million homes, begins to arrive. The

growing cost of groceries, gas, and other goods has already made life tough for many
individuals, even with cost-of-living adjustments. The Administration Earnings Threshold
(AET), which will increase from £355 to £494 for a single claimant and from £567 to £782
for a couple as of September 26, 2022, will remain the same for all other claimants
(Olaniyan, Ijaiya and Kolapo, 2022). The amount of the AET increase would cause around
17% of the Light Touch caseload to transition to Intensive Work Search, according to an
analysis of the earnings reported by claimants on the UC caseload between April and June
2021. In order to administer the benefit for this study, the DWP kept a tonne of operational
information.
2.3. Major Responses of the Bank of England and Their Implications to the
UK’s Economy
The job of the bank of England is to assist the country’s families and businesses in
navigating a possibly severe but brief economic shock. The three policy committees of the
Bank have detailed a thorough and timely package of initiatives to aid UK businesses and
citizens in navigating the expected economic disruption brought on by the conflict's
consequences. These steps will ensure that businesses continue to operate efficiently, that
people have jobs, and that a brief disruption won't have a long-term detrimental effect on the
economy. The knowledgeable counsel in this regard can also be taken into account.
2.3.1. Increase the Reserve-Ratio for Banks
The Federal Reserve employs three strategies to implement monetary policy, with bank
reserves being one of them. Since open economic transactions are a much more precise tool
for implementing monetary policy, the Federal has, however, seldom ever employed
revisions to reserve criteria in recent years. Less financial intermediation will be done by
banks as a result of a higher effective tax rate on depository transactions brought on by the
UK banks' increased capital adequacy (Stan, Strateanu and Udrea, 2022). If additional action
is not taken, increasing The quantity of loans that can be sustained by a certain level of
deposits will be lowered as a result of the needed reserve proportions, which will also reduce
the liquidity supply and elevate credit costs.
2.3.2. Government Bond Maintenance
The actual purpose of this legislation is to distribute revenue to the state through the
purchase of a government bond in consideration for a consented rate of interest. Debt is a
requirement for this form of investment. In exchange for funding Shareholders can utilize that

money to finance development ventures or networks and receive a fixed return on a
continuous basis. Bond demand is significantly impacted by interest rates. Bond demand is
likely to rise if interest rates fall below the coupon rate because they are a rewarding
investment. Demand could decline, though, if interest rates increase beyond the bond's
coupon rate (Zhou and et. al., 2022). The UK's banks might think about using commodities
derivatives on government bonds to gamble on borrowing costs or to protect themselves
against the turbulence and interest rate swings.
3. Conclusion
This means that any interruption in the electricity generation to Europe will have a
higher impact on discounted rates with in UK than would have been anticipated from
direct trade linkages. Gas prices in the UK and Europe were synchronized in 2022. Due to
merchants buying gas in the UK before exporting it to Europe to avoid higher prices
there, the production in the UK is reduced, and prices in Europe increase until they are
similar. Due to increasing demand across Europe, a stoppage in Russian gas exports to
other European nations would also raise prices in other marketplaces that the UK utilizes,
such as Norway. In addition, whether the conflict has short-, medium-, or long-term
implications, it is likely that businesses and customers around the globe, such as those in
the UK, would put off spending out of fear for the worst, delaying the pandemic's overall
restoration.

4. References
Books and Journals
Butler-Blondel, N., 2022. NIESR Monthly GDP Tracker-UK Economy Now In Recession.
Charlton-Czaplicki, T. and Hukal, P., 2022. A Life Course Perspective on Transitions into the
Gig Economy: Evidence from the UK. In SASE 34th Annual Conference 2022:
Fractious Connections: Anarchy, Activism, Coordination, and Control.
Chornyi, V., 2022. Rules of Origin in the EU-UK Trade and Cooperation Agreement:
Conceptual and Practical Challenges. Legal Issues of Economic Integration, 49(3).
Fazal, T.M., 2022. The Return of Conquest?: Why the Future of Global Order Hinges on
Ukraine. Foreign Aff., 101, p.20.
Forhad, M.A.R. and Alam, M.R., 2022. Impact of oil demand and supply shocks on food-
grain prices: a Markov-switching approach. Applied Economics, 54(10), pp.1199-
1211.
Gourd, E., 2022. Cancer research investment could boost UK economy. The Lancet
Oncology, 23(8), p.989.
Kordan, B., 2022. Russia’s war against Ukraine: historical narratives, geopolitics, and peace.
Canadian Slavonic Papers, pp.1-11.
Morgan, J., 2022. Classical political economy and its ongoing relevance. In Handbook of
Alternative Theories of Political Economy (pp. 33-50). Edward Elgar Publishing.
Olaniyan, T.O., Ijaiya, M.A. and Kolapo, F.T., 2022. Remittances, Financial Sector
Development, Institutions and Economic Growth in the ECOWAS Region. Migration
Letters, 19(2), pp.207-234.
Stan, S.N., Strateanu, A.G. and Udrea, L., 2022. Global Economic Influences Generated By
the Current Ukraine-Russia Conflict. Annals of" Valahia" University of Târgovişte.
Agriculture, 14(1), pp.19-24.
Zhou, X.Y., and et. al., 2022. Influence of Russia-Ukraine War on the Global Energy and
Food Security. Resources, Conservation and Recycling, 188, p.106657.