Russia’s invasion also sent shockwaves across the world, with the cost of oil and gas soaring.
Motorists were told pump prices could top £1.70 a litre, energy bills risked soaring to £3,000 a year and inflation could hit 8.2 per cent driven by rising food prices, with Ukraine a major supplier of wheat and corn. Russia’s invasion also sent shockwaves across the world, with the cost of oil and gas soaring and global stock markets plunging.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the inflation figure could be hit within weeks if yesterday’s jumps were sustained.
It would only fall back to 6.5 per cent by the end of the year, he added.
Inflation hit 5.5 per cent in January and the Bank of England says it will peak at more than 7 per cent in April when a new energy price cap results in 54 per cent increases in domestic energy bills. Mr Tombs said: “Today’s surge in oil, natural gas and electricity prices, if sustained, points to an extra 1.5 percentage point boost to UK Consumer Price Inflation (CPI).
“CPI inflation is now likely to peak at circa 8.2 per cent in April and only come down to 6.5 per cent by the end of the year.
“Hard to see how households’ real spending keeps rising.”
Ukraine: Sirens sound in Kiev as Russia begins invasion
Oil jumped to a seven-year high of $103 a barrel yesterday, while wholesale gas prices soared by nearly 40 per cent.
Russia is the world’s second biggest exporter of crude oil and the largest exporter of natural gas.
Stock markets slumped as fears grew over the economic fallout of Vladimir Putin’s actions. The FTSE 100 suffered its biggest one-day fall since June 2020 as investors reacted to the full-scale invasion, dropping 3.9 per cent to 7,207.4 and wiping £77billion off the value of the UK’s 100 biggest listed companies.
Among the big fallers was London-listed Russian mining and steel giant Evraz, whose biggest shareholder is billionaire and Chelsea FC owner Roman Abramovich.
Yesterday’s share slump meant the value of his stake in Evraz crash by almost £300million.
The most immediate impact in the UK is likely to be at the pump.
Pro-Ukraine rally held in New York City
Tom Tugendhat, chairman of the Commons foreign affairs select committee, said: “The decisions made around Europe are absolutely going to shape the way Vladimir Putin sees this because the reality is that if we leave this to stand, if we let it pass, you can forget petrol at £1.70 a litre, which is where it’s heading right now – it will be significantly higher.
“And you can forget about bread at 80p, 90, £1 a loaf.
“Ten per cent of the world’s wheat is grown in Ukraine and the idea that this year’s going to be a good crop is, I’m afraid, one for the birds. This is absolutely going to be one of those moments where we’re going to see the cost-of-living crisis driven by war.”
Thomas Pugh, an economist at RSM UK, added: “Looking beyond the immediate humanitarian impact, the effect on the UK economy will depend on what happens next and how long commodity prices remain elevated for.”
If the wholesale price of gas stays high, it could mean another jump in regulator Ofgem’s energy price cap. The price cap is updated twice a year and tracks wholesale energy and other costs.
It is next due to be reviewed in October but Ofgem has given itself emergency powers that could lead to the price cap rising even sooner.The cap’s increase from April 1 will send the average annual bill up from £1,277 to £1,971. Martin Young, a utilities analyst at Investec, warned the recent spike in wholesale prices could result in the price cap rocketing by around £1,000 in October.
He wrote: “The jump in electricity and gas prices of recent days has sent our October tariff cap estimate soaring above £3,000.”
Around the world, stock markets plunged, with traders piling into low-risk government debt and the price of gold – viewed as a safe haven in troubled times – hitting a 17-month high.
Chaotic moves in Russia’s markets led to the rouble weakening nearly 7 per cent against the dollar, and there were record 40 per cent falls on the Moscow stock exchange, which was forced to suspend trading early. The global equity rout had started with a 2.6 per cent dive for Asian indexes.
Germany’s DAX fell 5 per cent, bearing the brunt of the sell-off due to heavy reliance on Russian energy supplies and the amounts its companies sell to Russia.
Chris Beauchamp, chief market analyst at online trading platform IG, said: “While it had been expected, the actual Russian move into Ukraine has provoked another bout of selling across markets.”
Richard Hunter, head of markets at Interactive Investor, said: “The escalation of tensions arising from the Russian action has pulled the rug from markets, adding to an already brittle environment in the face of rising inflation and interest rate concerns.”
8.2% Predicted rate of inflation in the UK for April, up from 5.5% now £77bn Amount wiped off the value of the FTSE 100 yesterday…a fall of 3.9% 40% Fall in the Moscow stock exchange as the rouble weakened 7% against the dollar 5% Drop in Germany’s DAX, due to reliance on Russian energy supplies