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War in Ukraine: Ripples Reaching the UK Economy

Posted: 17 Mar, 2022

On 24th February, when Russia invaded Ukraine, the shock and calls for sanctions were immediate, but no one was certain how or when the ripple effects would impact the UK economy and business environment.

While Ukraine is only number 62 on the UK’s list of trading partners, with UK-Ukraine trade worth £1.8bn per year, Russia is, or was, the UK’s 19th largest trading partner with direct imports from Russia mainly consist of metals and precious stones.

Now, the Russian economy is in the process of being disconnected from the global financial system with wide-ranging and severe sanctions. So far, the UK Government has sanctioned more than 200 Russian individuals, entities and subsidiaries and barred Russian companies from raising money on UK capital markets.

As a result of these sanctions even Chelsea Football Club, seen by many as a British institution, has been ordered to stop almost all its business operations including selling tickets or signing players due to its being owned by Roman Abramovich.

Retaliating to the West’s sanctions, Russia has imposed export bans on more than 200 of its products including telecoms, medical, vehicle, agricultural and electrical equipment.

But while the full list of banned exports looks long, many of the export bans are unlikely to cause much hardship in the UK. What is having a more dramatic effect is the UK’s planned phasing out of Russian oil and gas imports, due to be complete by the end of the year.

Inflation was already creeping up before war broke out but now, fanned by higher energy prices, the cost of goods and services has been pushed to new levels. At one point, the price of oil hit a 14-year high which has had a significant knock-on effect on the price of petrol. Gas prices have soared too, with predictions that the average energy bill could reach £3,000 per year by October.

And while the business secretary, Kwasi Kwarteng, got it right when he said people are “willing to endure hardships” in solidarity with Ukraine, some are likely to endure more hardship than others.

British businesses are feeling the effects too. Those with interests in Russia are seeing substantial losses, with more to come.

Marks & Spencer, which was criticised in recent weeks for continuing to trade in Russia, has now bowed to pressure and announced the suspension of shipments to its Turkish franchisee’s Russian business which operates 48 stores through the country.

Like Marks & Spencer, many businesses with interests in Russia have taken the decision to cease Russian operations. This action not only means forgoing revenue while the war persists, but it now seems businesses are likely to lose (perhaps temporarily) their assets in Russia with Vladimir Putin announcing that the Kremlin would seize control of departing businesses where foreign ownership exceeds 25%.

In addition, any companies owed money by Russian businesses must face up to the reality that they are unlikely to be paid. Not only is the ruble effectively worthless, but restrictions on Swift payments make international transfers from Russia very difficult.

In short, the ripple effects of this war are already being felt in the UK by individuals and businesses. Many businesses that supply from, supply to, operate in, or invest in Russia will be looking to adapt or restructure as a means to survive. Those that are still fragile in the wake of the pandemic may not make it but those that seek advice early and are open to change have a chance.

TMA UK is part of TMA, a global organisation that represents the interests of turnaround professionals as its members who have the skills needed to assist companies in challenging times. If you need assistance, please contact our helpline on 0844 804 0116


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