Economic Impacts of War in Ukraine on UK's Business Environment

This essay analyzes the economic impacts of the prolonged conflict between Russia and Ukraine on the UK's economy, including the major recommended economic responses of the UK's government and the Bank of England. It also discusses the implications of the war on the UK's business environment.

Contemporary
Business Environment

Executive Summary
The world economy, which is only now starting to recover from the strain of the
coronavirus pandemic, would reportedly be significantly impacted by the prolonged conflict
between Russia and Ukraine, according to sources. By outlining its substantial consequences,
this essay will show how a problem of this nature has an impact on the UK's economy. The true
situation of trade will be determined by the financial consequences on the front. The officials
will use the clarification of the proper consequences as a guide as they decide what actions to
take to get back on track.

Table of Contents
TASK 1...........................................................................................................................................3
INTRODUCTION.........................................................................................................................3
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..........6
CONCLUSION..............................................................................................................................7
REFERENCES..............................................................................................................................8

TASK 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 by the UK and its allies might still have a significant
impact on the UK economy (Antyushin, Guskova and Serebrovskaya, 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.
Discussion and Analysis
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. 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 make up the majority of British exports to Russia. In 2022, the most recent year for which
information is both accessible and untouched by the outbreak, the preponderance of Russia's
imports to the UK were made up of precious metals, oil, and petroleum products (Bojanić and et.
al., 2022). The following factors make it more likely that the conflict will affect the trade
between the two:
Global Gas Prices – The price of gas in the UK in February 2021 was 38p per therm (a
measurement of gas consumption). It increased to 537p per therm this month. The price of gas in
the UK in February 2021 was 38p per thermos. 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.

UK-Russia Trade – Following the Russian invasion of Ukraine and the accompanying
imposition of economic restrictions on imports from Russia beginning in March 2022, imports of
commodities from Russia have experienced significant drops. The number of products imported
from Russia totalled £33 million in June 2022, which was the lowest amount since records first
began to be kept in January 1997. Considering the average monthly imports over the 12 months
prior to February 2022, this represents a reduction of 96.6% (Bugos, 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.
Major Recommended Economic Responses of the UK’s Government and their Implications.
The implications of Russia's invasion of Ukraine are expected to have the largest impact
on Britain's economy of any major industrial nation next year, causing it to grind to a standstill.
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. In order to
alleviate the detrimental effects of the protracted conflicts, the UK government can thus consider
taking significant aggressive actions (Brusylovska and Maksymenko, 2022).
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 (Čavoški, 2022), 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. 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.

Increase in Country’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. According to official figures, the UK increased its natural gas supply to Europe's
storage facilities throughout the Ukraine War. 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 severed all ties with Russia in the energy
sector and ceased importing any coal, gas, or oil from it in June, according to Offshore Energies
UK. As a result, there will be increased demand on the supply. 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 (Dacanay, Araneta and Ruiz, 2022).
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. 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.
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 (Dao, 2022). Through this network of knowledge transfer,

the entrepreneurs have access to information, resources, and markets that enable them to
commercialise the suggested idea. 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.
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 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.
Sustenance of Government Bonds – 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
infrastructure or new projects, investors can use that money to earn a predetermined return paid
on a regular 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
(Fingleton, 2022). Demand could decline, though, if interest rates increase beyond the bond's
coupon rate. 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.
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. If additional action is not

taken, increasing the required reserve ratios will decrease the number of loans that can be
supported by a given level of reserves, deplete the money supply, and raise the cost of credit.
CONCLUSION
On the basis of this, it can be said that any disruption in the energy supply to Europe will
have a greater effect on wholesale prices in the UK than would be projected 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.

REFERENCES
Books and Journals
Antyushin, M.V., Guskova, I.V. and Serebrovskaya, N.E., 2022. Factor analysis of the
functioning of small business and its development prospects under sanctions.
Entrepreneur’ s Guide.
Bojanić, T., and et. al., 2022. Fundamentals of Integrated Risk Management Model in Business
Processes. In Industrial Innovation in Digital Age (pp. 310-317). Springer, Cham.
Brusylovska, O. and Maksymenko, I., 2022. Discourse Analysis of Media on the War 2022 in
Ukraine: The case of Russia. Regional Science Policy & Practice.
Bugos, S., 2022. Russian Tactics Fuel Uncertainty in Ukraine. Arms Control Today, 52(3),
pp.25-27.
Čavoški, A., 2022. The impact of Brexit on epistemic communities in agricultural and
environmental sectors. In The Governance of Agriculture in Post-Brexit UK (pp. 134-
153). Routledge.
Dacanay, J., Araneta, M. and Ruiz, M.A.L., 2022. Virtues-Practices-Goods-Institutions
Framework, the Market Economy, and Virtue Ethics. In Humanistic Perspectives in
Hospitality and Tourism, Volume 1 (pp. 51-76). Palgrave Macmillan, Cham.
Dao, N., 2022. Environment and Society in Contemporary Vietnam: Development, Crisis, and
Responses. In Routledge Handbook of Contemporary Vietnam (pp. 378-391). Routledge.
Fingleton, B., 2022. Exploring Brexit implications: the impact of longer journey times.
International Journal of Computational Economics and Econometrics, 12(1-2), pp.174-
196.