City thinking, local knowledge

How the War in Ukraine Will Push up Prices

By Questa Chartered

Following Russia’s invasion of Ukraine on February 24th, many of our clients have asked us if the war is likely to push up prices in the UK, making the current cost of living crisis even worse.

The short answer is ‘yes, almost certainly’. We have tried to explain below what is likely to happen and how prices at home might be impacted.

As all our clients will know, the war has sharply pushed up the price of energy and fuel, with the oil price seemingly rising and falling with the advance and retreat of Russian troops. The price of oil has reached its highest level in almost 14 years, while gas prices have more than doubled.

The UK gets only 6% of its crude oil and 5% of its gas from Russia, with the EU sourcing nearly half its gas from the country. The problem – not just with oil and gas but with many commodities – is that countries may seek to stockpile, which will further drive up prices.

The cost of your weekly shop could also rise. Russia and Ukraine were once dubbed ‘the breadbasket of Europe’, exporting almost a quarter of the world’s wheat, together with half of sunflower products, such as seeds and oil. While the UK typically produces 90% of the wheat consumed in the country, farmers may well find themselves paying more for fertiliser, which is one of Russia’s biggest exports.

The continuing war may also push up the price of aluminium, which will mean an increase in the price of tinned goods.

If prices continue to rise – and despite Rishi Sunak’s comments in his Spring Statement many economists see inflation pushing up towards 10% this year – then the Bank of England will almost certainly increase interest rates in a bid to keep a lid on inflation.

Inevitably, this will mean an increase in mortgage rates for people with mortgages linked directly to base rates – and rates generally are almost certain to go up.

We’ve mentioned tinned goods – but the war may also mean those rather larger tins we drive around in will increase in price. Russia is a major exporter of metals, including nickel (used in lithium-ion batteries) and palladium, which is used in catalytic converters. Throw in continuing supply chains problems further disrupting the supply of semiconductor chips and an increase in the price of cars looks likely.

These are worrying times. We have obviously seen sharp fluctuations in world stock markets with the progress of the war, but it is important to remember that saving and investing is a long term commitment. Nevertheless, we appreciate that clients will have concerns.

If you have any questions at all – either on the implication of the war or on any aspect of your savings and investments – then please do not hesitate to contact us.

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