!-- Google tag (gtag.js) -->

How Putin lost his grip on your finances

Russian President Vladimir Putin gestures while speaking at a news conference - Sergey Guneyev via AP, File

Russian President Vladimir Putin gestures while speaking at a news conference – Sergey Guneyev via AP, File

Vladimir Putin’s war has wreaked destruction in Ukraine – and the economic ripples of the first major conflict on European soil since the Second World War have been felt around the world, including by British consumers.

Energy prices and food costs soared in the wake of the invasion, adding to a cost of living crisis which had already taken hold in British households. But, one year on, inflation is now cooling, the stock markets are picking up and experts expect power prices to soon become competitive again.

Moscow has been met with international condemnation and a legion of sanctions from the West, including bans on Russian oil and gas imports, financial restrictions and a crackdown on oligarchs. But 12 months on, was the economic fallout of the conflict as bad as economists initially feared?

In June last year Paris-based think tank the Organization for Economic Co-operation and Development forecast the UK would see the slowest growth of all developed countries as a result of “economic spill-over” from the conflict.

Gabriella Dickens, of Pantheon Macroeconomics, said: “The UK is still the only G7 economy not to return to pre-covid levels.”

The UK has dramatically underperformed its peers in recent years, with real GDP in Q4 of last year 0.8pc below the same period in 2019, according to analysis by Pantheon. In contrast, GDP in Germany was 0.1pc higher than pre-pandemic, 1.2pc higher in France, had grown by 1.8pc in Italy and climbed by 5.1pc in the US.

Ms. Dickens said: “Whether the Ukraine conflict has had an impact on that is hard to say. But what we do know is a major factor why the UK has underperformed its peers is British households have been much less willing to spend money than other countries.”

The country has contended with its fair share of political turmoil since last February, with three prime ministers having taken up residence in No. 10 since the invasion.

This instability contributed to the country’s poor economic performance on the global stage, said Ms Dickens.

She said: “Consumers were least confident in September last year, coinciding with the mini-Budget, so political influence is having an impact.

“Rising interest rates are also felt much more quickly for households and companies in the UK than the Eurozone and we can expect this trend to continue this year with a bigger hit on disposable income.”

Soaring energy bills – and the pain is not over

Wholesale energy prices were already inflated prior to the Ukraine conflict as a result of a post-pandemic surge in demand, after months of low use during successive lockdowns.

When Putin invaded Ukraine in February 2022 Western nations responded by weaning themselves off Russian gas – or putting plans in place to do so – via sanctions and price caps. Wholesale prices for gas and electricity, which in Britain is mostly generated using gas, surged to record-highs as a result.

Domestic suppliers quickly pulled fixed tariffs from the market, leaving variable tariffs as the only option for many households and exacerbating squeezed finances. Amid the chaos the energy regulator Ofgem repeatedly hiked its price cap, meaning wholesale price changes were fed through to bill payers more quickly.

A slew of suppliers went bust amid warnings annual household bills were on track to exceed £5,000, prompting the Government to intervene. In one of the first acts of her short-lived premiership, Liz Truss introduced the Energy Price Guarantee in her ill-fated mini-Budget – capping the average annual bill at £2,500.

This level of protection was initially intended to run from October 2022 to October 2024 but was dramatically reduced by Jeremy Hunt soon after, when he announced the new cap would rise to £3,000 from April 2023.

If a fall in wholesale prices pushes the Ofgem price cap below the Government’s Energy Price Guarantee, households will revert back to the former. After more than a year of soaring energy prices, this is finally on the horizon.

The world has adapted to a life without Russian gas and European nations have doubled down on efforts to stockpile reserves of liquefied natural gas to bolster supplies.

Demand has also fallen following a relatively mild winter and wholesale prices have plummeted.

Guy Ellison, an analyst at wealth manager Investec, said: “The milder weather this winter and reduced peak demand for gas and electricity played a big part in the economic damage of the Ukraine conflict not being as bad as initially feared.”

Widespread campaigning for households to improve their energy efficiency also reduced strain on reserves, alongside an emergency program rolled out by National Grid to pay people to reduce their electricity usage at peak times and avoid energy blackouts.

Falling wholesale prices should soon filter through to suppliers and households, meaning competitive fixed tariffs will return. Cornwall Insight, an energy analyst, said there was now “a good chance energy firms will be able to offer fixed tariffs that compete with the capped Government prices, reviving the benefits of switching”.

But despite falling costs, energy bills for the average household will still be significantly higher than before the crisis – the energy price cap was £1,138 in September 2021.

Cornwall Insight currently predicts Ofgem’s price cap will fall to around £2,200, but not until September. So when the Government’s price guarantee rises to £3,000 in April, it will leave a three-month window during which households are paying the highest rate for their energy on record.

These figures are also predictions. The past year has taught us economic and political headwinds can change quickly and blindside the energy market.

FTSE 100 hit record highs

Global markets have contended with rampant inflation, the conflict in Ukraine and higher interest rates in the past year. But the FTSE 100, Britain’s blue-chip index, rebounded from an initial drop and surged to an all-time high at the beginning of this month.

Mr. Ellison said: “The energy sector forms a far bigger part of our stock market than other countries. A lot of the initial froth has come off oil and wholesale natural gas prices since the invasion, but energy companies in the index, such as BP, have benefited from inflated prices in the past year.

“Be wary about reading too much into the FTSE 100 hitting a record high – that is not necessarily a barometer for the UK economy.”


Huge increases in energy prices triggered by the Ukraine conflict helped push inflation to a 41-year-high of 11.1pc in October last year. The Bank of England has raised its central interest rate ten times since December 2021 in a bid to control inflation, which currently sits at 10.1pc.

As the Bank Rate rose, so too did interest rates for households and those with mortgages and loans saw their borrowing costs surge as lenders passed on higher costs.

British mortgage borrowers typically lock into rates for far shorter periods than their European peers. Analysis by Pantheon found 28pc fixed-rate mortgages in the UK will be refinanced this year and almost all of them will follow in the next five years.

By contrast, just 48pc of mortgages in the Eurozone will be refinanced over the next five years, widening the international disparity on disposable income and spending power.

More than 1.4 million households will pay higher rates this year as their fixed deal comes to an end, according to figures published by the Office for National Statistics.

Mortgage rates may have cooled in recent months, but are still more than double what they were in February last year – the average two-year fixed rate is currently 5.35pc, compared with 2.44pc a year ago. On a typical £200,000 loan the difference in rates would cost a borrower £484 more each month.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top