Sunak must offer more support to counteract collateral damage of sanctions
These are challenging times. The reconstruction job from Covid-19 had barely begun when Russia invaded Ukraine. Now the international consensus to build back better from the pandemic has been replaced by an urgent need to stop the conflict and prevent it escalating.
With such high stakes, economic sanctions not bombs are the western weapon of choice, limiting Vladimir Putin’s ability to muster guns and butter. But while there will be harsher consequences for Russia, made a pariah under the Putin regime, it is a battle not without economic collateral damage.
European leaders will this week announce a strategy to cut Europe’s reliance on Russian energy – a plan in the works before the first tank rolled into Ukraine, now given added urgency. With Russia accounting for 40% of EU gas imports – rising to 65% in Germany and 100% for some eastern European states – it is a prudent move. Yet it is a process likely to take years. In the meantime, the shock of war will drive up energy prices across the continent – adding to what was already the worst squeeze on living standards in decades.
In Britain the inflationary surge could lead to the sharpest annual fall in living standards since at least 1956, the year of the Suez crisis. Not even the oil price shocks of the 1970s or the 2008 financial crisis come close, witnessed as the fallout from Covid holds back recovery from the worst recession in a century.
The fact that such a squeeze will result is damning. Inflation is forecast to peak close to 8% this year, but that is still less than half the rate seen four decades earlier, when it hit almost 23% in 1975. Instead, today’s cost of living crisis is not only inflationary but also stems from weaker rates of wage growth, made worse by
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