London, (Parliament Politics Magazine) – Anyone living in the United Kingdom has already noticed that living costs are going up. It is not just a matter of inflation; the UK faced higher energy prices before Putin invaded Ukraine. The rise in the cost of living has several concurrent causes. In January 2022, HMRC started imposing custom duties on imports from the EU, so olive oil, Spanish wine, French cheese, Italian pasta, or German beer are becoming more expensive.
The government spent a lot of money to support businesses and individuals during the lockdown in the past two years. The NHS used a lot of resources to fight COVID-19 and now needs a lot of resources to sort out the backlog of non-COVID-19 treatments that are necessary; an aging population makes more demand on social care, etc. And all of that was before Putin decided to invade Ukraine.
The West’s answer to Putin’s decision to invade Ukraine was to use sanctions against Russia and the oligarchs; as a commentator put it, “It’s tanks versus banks.” The problem is, it only takes Putin to threaten to suspend supplying oil and gas to the West for prices to go up.
Irrespective of a specific country’s dependency on Russian supplies for its energy requirements, the mere idea that supplies may be disrupted makes prices soar. Higher fuel costs may have a negative effect on prices. Logistics need fuel; if the delivery of any product costs more because of higher fuel prices, the cost of that product will go up. Fuel is not the only issue; Russia and Ukraine count for more than 30% of the global production of wheat. If the war continues into the summer and the harvest is disrupted, the cost of grain may go out, with repercussions to the price of bread, if not n more products. This does not consider any risks associated with leakages from nuclear power stations. Another Chernobyl-like accident would create more problems to food supplies than just a higher price of bread and pasta (or Naans). Those old enough to remember the Chernobyl accident also remember that prevailing winds scattered nuclear fallout around half of Europe. Milk was rationed, safe leaf vegetables were really hard to find, potatoes and carrots disappeared from menus for quite a few weeks.
How will the economy react to this dire scenario? The optimistic school of thought mentions the reserves people accumulated during lockdown because they did not spend money on things they could not do. Also, staying home required fewer clothes and fewer restaurant meals. Very few people spent a fortune on theatre tickets in 2021.
The government’s statistics on employment are very good, so a lot of people still have an income. After two years of restrictions, consumers want to go out and do things. Being out and about costs money, money that becomes part of the economy. On the other hand, if insecurity prevails and people save money wondering whether they will face a “heat or eat” dilemma, things will become worse not just for the economy but also for the standard of living.