Energy prices spike after Russia invades Ukraine
Russian President Vladimir Putin’s decision to launch a full-blown incursion of Ukraine sent energy prices soaring yesterday in a sign the cost of living squeeze in the UK will tighten.
European gas prices climbed over 30 per cent during a day in which energy markets responded violently to news of the rapid pace of Moscow’s invasion of Ukraine.
Meanwhile, oil prices topped $100 for the first time since 2014, with Brent Crude topping $105 per barrel before dropping down to around $102, reflecting 5.7 per cent growth over the course of the day.
The Kremlin’s decision to seemingly send troops on a course to Kiev has raised concerns Russian gas flows running through Europe could be severely disrupted.
A ramping up of Western sanctions, and potential retaliatory measures from Russia, could suck gas inventories from Europe’s already tight energy markets, putting further strain on the Continent’s struggling power grid.
Kremlin-backed Gazprom’s supplies are already at decade lows within European storage, leading to the bloc resorting to top-ups of liquefied natural gas from overseas, mainly from the US.
While the EU and UK have so far stopped short of energy-specific sanctions, German Chancellor Olaf Scholz recently suspended the approval process for Nord Stream 2, which could have doubled flows between Germany and Russia.
US President Joe Biden imposed sanctions on its Swiss-based operating company Nord Stream 2 AG earlier this week.
Accelerating energy prices sparked concern over a ratcheting up in the UK’s cost of living crunch.
Fund manager Investec projected the price cap could rise again in October to an eye-watering £3,000 per year.
Martin Young, senior analyst at, Investec said, “Prices have risen markedly over the past couple of days, this could have serious implications for the level of the default tariff cap for October.”
Soaring wholesale gas prices is set to trigger re-calculations from the Bank of England and other economists on where UK inflation will peak.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said in a tweet yesterday’s upward energy price movements will add an extra 1.5 percentage points to his inflation forecasts, taking the cost of living peak to 8.2 per cent.
Worryingly, inflation will still be running at 6.5 per cent by the end of the year, he said.
Quicker than expected price rises means the hit to households’ living standards this year – already thought to possibly be the steepest since the late 1940s – will be even worse, clouding the outlook for economic growth in 2022.
They also strengthen the case for further rate hikes from the Bank of England, although rate setters have stressed they are unable to influence international energy shocks. Prices are already 5.5 per cent annually.