The Governor of the Bank of England, Andrew Bailey, has recently blamed the war in Ukraine for the highest inflation the UK has faced in three decades. Are Putin’s actions to blame for the economic crisis the West is facing? Or, in fact, are Western leaders using Putin’s actions in Ukraine as an excuse for their own failed macroeconomic policy?

According to government ONS data, inflation in the UK started rising well before Russia began its military operation in Ukraine. In fact, it started steadily increasing from around March 2021. Furthermore, due to the COVID pandemic, in the UK, the government pumped massive amounts of money into the economy through quantitative easing. The UK borrowed approximately 200 billion to finance the various furlough, loans, and business schemes. Support packages included, for instance, business rate relief, business grants, VAT payment deferral, local authority discretionary grants, etc. This led to an excess supply of money in the economy with more money chasing fewer goods leading to higher inflation.

Of course, it was necessary for governments to provide people with some level of basic income given that the economy was locked down and people were not able to work. However, it appears that excessive spending is a key driver of the current inflation in the UK. Interestingly, Russia also provided support for its coronavirus-hit economy, yet it was far better controlled: Russia provided 2.6% of its GDP as support, which is five times less than the equivalent spending of most Western Nations. The Bank of Russia now predicts that inflation will drop to 4% in 2024, which is in line with pre-pandemic levels. It seems that the excessive, uncontrolled spending in the UK is the primary cause of inflation, rather than Russia’s actions in Ukraine. The UK Bank of England also predicts that inflation will drop down to 2% in two years’ time, however, they also state that the cost of some things may stay at a high level compared to the past.

Andrew Bailey also blamed Russia for the UK’s soaring gas and energy costs. However, over the years, the UK has become increasingly dependent on imports of energy. According to the Statistica website, the UK has a 35% dependency on imports of energy. Unfortunately, for the British people who rely on energy imports, it means that consumer costs are dependent on fluctuations in market prices. Russia has redirected its supply eastward following the package of sanctions introduced following its intervention in Ukraine. This has led to a shortage in energy supply and consequent price increases.

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The UK has not always been dependent on imports of its energy. According to government statistics between 1998 and 2005, it was a net exporter of energy with oil and gas being derived from its North Sea Oil reserves. Furthermore, some experts also state that the UK has enough shale gas to place the country in the top rankings of global shale gas producers. The government has recently commissioned a review into Shale gas extraction. There has been a pause in the activity in England since 2019, following a report that found it was not possible to accurately predict the probability or magnitude of earthquakes linked to hydraulic fracturing operations. It seems that the events in Ukraine have finally spurred the government in the UK to consider its dependence on key consumable imports. However, even if fracking is proved to be a viable option, it may take a long time to develop the technology and it will undoubtedly require a huge amount of investment in order to ensure that the extraction is fit for purpose and does not cause damage to the environment. 

However, it is important to note that if Western leaders wanted to guarantee the security of their supply and stabilize prices, they would have initially done one of two things. Firstly, they would have considered the long-term effects of relying on imports for key consumables, such as oil and gas. Secondly, having failed to do this, they would have evaluated their key supplier dependency and refrained from imposing such aggressive sanction packages until such time as they had managed to guarantee the price and stability of consumables for their own population.

It seems that each successive government in the UK adopts extremely short-term policies, which may guarantee them votes at the time of election. However, these policies are devastating for the long-term security of the population in the key areas of food and energy. Certainly, the war in Ukraine has exacerbated the economic challenges faced by the UK. However, these challenges have always been there and the UK now needs competent leaders who have the foresight and intelligence to make long-term decisions that will guarantee the security and price stability of key consumables, and ultimately restore economic stability to the UK.