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... in June last year ... the UK gas price was 70p a therm, which seems like nothing now, but that is 50% above the 10-year average. To give you just a few points of reference, the 10-year average is 50p a therm. It was trading at 70p a therm in the summer of last year. That is really when storage should have been filled, but it was not. [ ... ] What you saw was a build in the price, all the way up to 450p a therm, before Christmas. [ ... ] From a consumer point of view, we already know the average energy bill will move up to £2000 a year from April. The key thing is that the input price is 126p a therm. The year-to-date average gas price is about 225p, so bills in October are going to go up again, and by quite a margin. What you are going to see is a doubling in people’s energy bills year on year, because the gas price sets the electricity price in the UK.[1]
- Despite producing significant amounts of oil and gas, the UK is not protected from the economic consequences of sanctioning Russian oil and gas production. The price paid for gas in the UK is dependent on the level of demand for gas in Europe. The price paid for oil in the UK is dependent on the global price of oil. Further sanctions on Russian oil or gas will lead to higher prices which in turn will feed through to UK households and businesses.
- We heard from our witnesses that the economic sanctions imposed on Russia to date will have an impact on the UK economy. Tom Keatinge, Director at the Centre for Financial Crime and Security Studies, Royal United Services Institute, said that he wrote in December “that we are not going to be able to put the sanctions on Russia that we are promising without creating self-harm”.[2]
- Neil Shearing, Group Chief Economist at Capital Economics, outlined what that
cost might be, telling us that it would run through three channels: the impacts on trade,
financial linkages, and commodity prices and inflation.[3] On trade he explained that:
Our trade linkages with Russia, in a direct sense, are not particularly large— our exports of goods and services to Russia make up about 0.2% of GDP. I think you can expect those to pretty much dry up all together, at least for the foreseeable future—for the next quarter or two. That is an economic hit. Those costs might be concentrated in one or two sectors, or on one or two firms, so there might be some pain there.
On commodity prices he noted that:
[ ... ] far and away the most significant hit to the UK economy at the moment will come through the effect on energy prices and the cost of our imports. That is not because we import a lot from Russia, but because global prices have gone up. As a result of everything that has happened so far,
