Gas, food and energy prices 'will be driven much higher than expected'

Gas, food and energy prices 'will be driven much higher than expected'

February 24, 2022

‘The cost of living crisis will be driven by war’: Warning gas, food and energy prices will be pushed far higher than expected by Ukraine invasion – with cost of petrol to surge ‘any time soon’

  • Price of Brent crude oil hits highest level since 2014 after increasing by 5.6% to $102.30 per barrel today
  • This week has already seen record fuel prices on forecourts in Britain and they could now rise further
  • RAC says average cost of litre of petrol or diesel at UK forecourts is now 149.43p or 152.83p respectively
  • Price situation is expected to worsen as retailers pass on further rises in wholesale costs to consumers 
  • Meanwhile concerns are mounting over reliability of supplies after Russian troops entered Ukraine

A senior Conservative MP today warned that the cost-of-living crisis engulfing the UK will become ‘driven by war’, while motorists were told to expect a surge in fuel prices ‘any time soon’ following Russia’s invasion of Ukraine.

The price of Brent crude oil hit its highest level since 2014 after increasing by 5.6 per cent to $102.30 per barrel this morning, during a week that has already seen fuel prices reach new record levels on forecourts in Britain.

The AA said the average cost of a litre of petrol or diesel at UK forecourts yesterday was 149.43p or 152.83p respectively, and the RAC warned drivers to expect petrol to hit the ‘grim milestone’ of 150p in the coming days.

The latest figures compare with petrol at 145.91p a litre and diesel at 149.22p one month ago, and petrol at 122.50p a litre and diesel at 125.99p one year ago. The AA warned that new record fuel prices are likely ‘any time soon’.

The situation is expected to worsen as retailers pass on further rises in wholesale costs to consumers while concerns mount over the reliability of incoming supplies after Russian troops entered Ukraine.

And gas and food prices are now in danger of rising much higher than expected, with chair of the Foreign Affairs Committee Tom Tugendhat saying Britain was ‘going to see the cost-of-living crisis driven by war’. 

A Shell petrol station near London Bridge on Tuesday. The RAC has warned the petrol average is on the way to £1.50/litre

Oil pumping jacks known as ‘nodding donkeys’ operate in an oil field near Almetyevsk in Tatarstan, Russia, in March 2020

The MP told BBC Radio 4’s Today programme this morning: ‘The Russian people are still flying using planes with Rolls Royce and General Electric engines. The money still needs to be transferred and the cost of transferring that money still has an effect on the Russian Exchequer.

‘The decisions made around Europe are absolutely going to shape the way Vladimir Putin sees this because the reality is that if we leave this to stand, if we let this pass, you can forget about petrol at £1.70 a litre, which is where it’s heading right now. It will be significantly higher. And you can forget about bread at 80p, 90p, £1 a loaf.’

Global markets plummet after Russia invades Ukraine: FTSE plunges 2.73% or 204 points to 7,294 as oil hits seven-year high of $103 a barrel 

Stock markets in Britain and around the world plunged today after Russia attacked Ukraine amid fears that a war in Europe will fuel higher inflation and derail the economic recovery following the pandemic.

The FTSE 100 in London fell by 2.73 per cent or 204 points to 7,294 in early trading this morning – while oil prices surged by 6 per cent, pushing Brent crude to $103 and past $100 a barrel for the first time since September 2014.

A currency trader talks on the phone at a bank in Seoul today

The Dax in Germany fell by 3.8 per cent or 555 points to 14,076 this morning, while the CAC 40 in France was down 3.4 per cent or 230 points to 6,550 as analysts declared that stock markets were ‘getting hit very hard’.

Russian forces fired missiles at several cities in Ukraine and landed troops on its south coast today after President Vladimir Putin authorised the ‘special military operation’ in response to what he said were threats from Ukraine.

Overnight, stocks in Asia fell with the Hang Seng in Hong Kong losing 3.1 per cent; the Kospi in Seoul falling 2.6 per cent; the Shanghai Composite Index down 0.9 per cent; and the Nikkei 225 in Tokyo dropping 2.2 per cent.

On Wall Street yesterday, the S&P 500 fell 1.8 per cent to 4,226, which put it 11.9 per cent below its record last month on January 3, while the Nasdaq lost 2.6 per cent to 13,038 and the Dow Jones fell 1.4 per cent to 33,132.

He added: ‘Ten per cent of the world’s wheat is grown in Ukraine and the idea that this year’s going to be a good crop, I’m afraid, is for the birds. This is absolutely going to be one of those moments where we’re going to see the cost-of-living crisis driven by war.’ 

AA president Edmund King said: ‘Russia’s attack on Ukraine and resulting geopolitical uncertainty has pushed Brent crude above $100 per barrel for first time since 2014. This will result in hikes in prices at the pumps. New record fuel prices are likely any time soon.’

‘Prices at the pumps still vary considerably and tend to be cheaper when there is supermarket competition.’  

Mr King advised drivers wanting to conserve fuel to consider cutting out short journeys, car-sharing, reducing speeds and driving more smoothly.

He said: ‘Cutting speed and driving more smoothly can lead to 15 per cent reductions in fuel consumption.’

RAC fuel spokesman Simon Williams said the increase in the cost of oil will ‘inevitably lead to wholesale fuel prices going up, which will in turn push record pump prices even higher’.

He told MailOnline: ‘Russia’s actions will now push petrol pump prices up to £1.50 very soon. The question then becomes where will this stop and how much can drivers take just as many are using their cars more and returning to workplaces.

‘If the oil price was to increase to $110 there’s a very real danger the average price of petrol would hit £1.55 a litre. This would cause untold financial difficulties for many people who depend on their cars for getting to work and running their lives as it would sky rocket the cost of a full tank to £85. 

‘At $120 a barrel – without any change to the exchange rate which is currently at $1.35 – we would be looking £1.60 a litre and £88 for a full tank.’ 

Oil and gas prices have surged this week as the crisis in eastern Europe intensified – with a close ally of Russian president Vladimir Putin warning that retaliatory sanctions would see gas prices more than double in Europe.

Prime Minister Boris Johnson has already acknowledged in the Commons this week that energy prices would be pushed to new levels as a result of the conflict.

Former minister Robert Halfon called for financial support to help families cope with the reality that ‘the war is likely to increase the cost of living for ordinary folk across the country’.

Mr Johnson replied: ‘He is quite right that one of the risks of Putin’s venture is that there could be a spike in gas prices, in oil prices…

‘The Government will do everything we can to mitigate it and help the people in this country but it’s one of the reasons why the whole of Western Europe has got to end their dependence on Russian oil and gas.’

Former Russian president Dmitry Medvedev, a close ally of Putin, said Germany’s decision this week to cancel Nord Stream 2 – the underwater pipeline due to carry Russian gas to Western Europe – would see Europeans ‘soon paying €2000 per thousand cubic meter of gas’. This is more than double the current price of around €900. 

A war could lead to significant disruption to ship movements around the Black Sea, which could fuel higher food inflation

Chair of the Foreign Affairs Committee Tom Tugendhat (centre) has said the cost-of-living crisis will become ‘driven by war’

While the UK is not as dependent as other European countries on Russian gas, the UK will still feel the effect of a rise in global prices.

The energy regulator Ofgem warned any rise could lead to a further £700 hike in the price cap in October, on top of the £700 rise coming into effect in April. 

Today, Chancellor Rishi Sunak will reject ‘flippant’ calls for immediate tax cuts – and warn they can be delivered only when spending is brought under control.

In a major speech he will pledge to deliver a ‘lower tax economy’ while insisting it must be done ‘sustainably’.

His comments will be seen as a warning to ministers that they need to rein in their spending demands if they want tax cuts before the next election.

The speech comes as he faces intense pressure to axe the £12billion national insurance rise planned for April.

The tax increase was agreed last September after the Chancellor insisted the huge cost of clearing the NHS waiting list, coupled with Mr Johnson’s pledge to tackle social care, could not be funded from increased borrowing.

Mr Sunak has told MPs privately that he is determined to cut taxes before the next election – and is targeting a headline-making cut in the basic rate of income tax.

Life on the home front: How Ukraine invasion could send cost of petrol to 170p a litre, push up energy bills by ANOTHER £700 and raise price of weekly shop

Britons have been told to prepare for soaring fuel prices and rising food bills amid the crisis in eastern Europe.

Following Vladimir Putin’s decision to order Russian forces into eastern Ukraine, European gas prices jumped by 13 per cent and Brent crude oil closed at about $100 a barrel which was a seven-year high.

While the UK is not as dependent as other European countries on Russian gas, Britain will still feel the effect of a rise in global prices, which could lead to a further £700 hike in the price cap this October.

The RAC said petrol prices were set to break through the £1.50 per litre barrier in the coming days, while UK food prices could rise if war causes significant disruption to ships in the Black Sea.

Here is what could happen to the cost of living in Britain as a result of Russia’s invasion of Ukraine this week:

Oil prices: Petrol heads for £1.50/litre with £1.70 possible if supply is restricted 

Motorists have been warned to expect petrol prices will hit the ‘grim milestone’ of £1.50 per litre after Russian troops entered eastern Ukraine – with some analysts even forecasting a rise to £1.70 if supplies are restricted.

Oil prices increased this week to their highest level since September 2014 due to concerns over the reliability of supplies, with Brent crude exceeding $100 a barrel. This is likely to lead to an increase in fuel prices as retailers pass on the rise in wholesale costs – although these costs in Britain are already at record highs.

The AA said the average cost of a litre of petrol or diesel at UK forecourts yesterday was 149.43p or 152.83p respectively. The latest figures compare with petrol at 145.91p a litre and diesel at 149.22p one month ago, and petrol at 122.50p a litre and diesel at 125.99p one year ago.

With the price of oil rising amid the invasion by Russia – which is the world’s third-largest oil producer – this looks set to be passed on at the pumps within days in yet another blow to hard-pressed British motorists.

Analysts said crude oil prices could rise to $120 a barrel if supplies are restricted, which could mean petrol prices would rise to more than £1.60 per litre. Experts even said oil could rise to $140 if Russia launches a full-scale war, which the RAC estimates would increase the petrol price to £1.70 a litre. 

Such an increase would send inflation soaring in most Western economies. 

RAC fuel spokesman Simon Williams said: ‘Russia’s decision to invade Ukraine is already causing oil prices to rise and will undoubtedly send fuel prices inexorably higher towards the grim milestone of £1.50 a litre.

‘The price of oil is likely to go above $100 and stay there on the back of traders fearing future disruptions in supply. This spells bad news for drivers in the UK struggling to afford to put fuel in their cars.

‘With retailers quick to pass on any wholesale price rises they experience, we could sadly see the average price of unleaded hit £1.50 in the next few days and diesel approaching £1.54.’

In the 24 hours after Mr Putin’s decree recognised two breakaway Ukrainian territories, the UK, US and European Union bought a combined 3.5million barrels of Russian oil and other similar refined products worth more than £240million at current prices – and these purchases are likely to continue despite the ongoing political crisis.

Gas prices: Fears Russia could disrupt supplies sends prices soaring by 13% 

Traders fear Russia could disrupt gas supplies to Europe – and, along with Germany’s decision to block the Nord Stream 2 pipeline which is seen as a major economic blow to Moscow – this sent gas prices spiralling this week.  

In response, Russian government official and former president Dmitry Medvedev last night warned European gas prices could double in future. On Tuesday UK gas prices rose by 9 per cent and in Europe by 13 per cent – compounding a crippling energy and cost of living crisis that has piled strain on households and businesses.

Wholesale gas prices rocketed last year partly because Russia was sending less to Europe – which some politicians claimed was a political ploy by Vladimir Putin to put pressure on the West to approve Nord Stream 2. It was made worse by low European gas supplies, low wind energy in the UK and a global scramble to buy gas shipments. 

Berlin has come under fire in recent months for pressing ahead with the £8billion gas link as the Russian military amassed troops inside and at its neighbour’s borders. But German Chancellor Olaf Scholz U-turned on Tuesday and said he would now refuse to sign off on the project, owned by Russian state energy giant Gazprom. 

The Sun Arrows tanker loads a cargo of liquefied natural gas from the Sakhalin-2 project in Prigorodnoye, Russia, last October

Financial experts have pointed out Europe’s dependency on Russia for natural gas, as shown in this Associated Press graphic

The UK only takes about 3 per cent of its gas supplies from Russia, but wholesale gas prices are determined by the international market – and Europe is heavily reliant on Russia. 

On the subject of supplies, Prime Minister Boris Johnson said this week: ‘In the UK we have been able to reduce our dependency on Russian gas very substantially. Only 3 per cent of our gas supplies now come from Russia.’

Britain relies on Russia for less than 5 per cent of its gas imports, with three-quarters of them coming from Norway. The Nord Stream 1 pipeline has been operational in the Baltic Sea since 2011, providing 55 billion cubic metres of gas to Berlin every year. Nord Stream 2 would have doubled that capacity.

As other countries try to find others sources to replace Russian gas, the price will be driven up – and some energy-intensive industries have already warned they may be forced to shut down temporarily.

The price per therm in pence is shown for UK natural gas prices, which could be set to soar due to the situation in Ukraine

Ofgem shows the breakdown of costs in the energy price cap for a dual fuel customer paying by direct debit with typical use, after the latest rise in the cap this April comes into force (right)

The energy regulator Ofgem warned any rise in gas prices could lead to a further £700 hike in the price cap this October, on top of the near-£700 rise coming into effect within weeks. 

Earlier this month it emerged that the cost of heating homes will rocket by 54 per cent for 22million households from April, adding £693 to the annual bills of a typical UK household – with another potential hike in October. 

Energy and Climate Intelligence Unit analyst Jess Ralston said: ‘Given the global nature of gas markets, the UK’s dependence on gas for heating and power will leave UK bill payers on the hook for Putin’s incursion into Ukraine.

‘The Government will increasingly feel the pressure to shield households in the long-term by insulating more homes, speeding the switch over to electric heat pumps and getting on with delivering the net-zero policies that will wean us off volatile gas and protect us from future crises.’

Food prices: Disruption to Black Sea ship movements would bring higher prices

Britons have been facing significant rises in the cost of food at supermarkets for months now as inflation continues to soar, and analysts warned there could be more trouble ahead if a full-blown conflict breaks out.

A war could lead to significant disruption to ship movements around the Black Sea, which would fuel higher food inflation given that Ukraine, Russia, Kazakhstan and Romania all ship grain from ports in the area. 

Susannah Streeter, senior investment analyst at Hargreaves Lansdown, said: ‘The extra pounds on bills are piling up for families, with the increase in fuel, energy and grocery bills set to hit lower income households harder. 

A shopper picks items off the shelf at a supermarket in London last week, as prices continue to rise at stores in the UK

‘With budgets being squeezed further the likely knock on effect of a fresh rise in prices, caused by the escalating situation in Ukraine, would be a blow to consumer confidence after lockdown savings are increasingly worn away.’

Separately today, the National Federation of Fish Friers warned that the average price of fish and chips could soon hit £10, with cod supplies now 75 per cent more expensive than in October.

The industry body told the Daily Mirror that cost of buying mushy peas has doubled, while shops are also suffering from steep rises in packaging and energy bills. The average cost of a portion is currently £6.50 to £9. 

Shops are also having to consider smaller catches and a general rise in global demand. National Federation of Fish Friers president Andrew Crook charges £7.50 at his shop Skipper’s in Euxton, Lancashire.

But he told the newspaper: ‘It could soon be over £10 and others are likely to do the same. Rising costs are really putting us under pressure and will push some out of business.’  

Kantar said last month that Tesco is the UK’s biggest supermarket, with a 28% market share. Sainsbury’s is in second place

Last month it was revealed that the prices of many household food essentials – from beef and bread to milk, eggs and peas – are rising at more than 10 per cent a year, fuelling the cost of living squeeze.

Industry analysts looking at five supermarkets said they typically see around 2,700 increases in early January, but this year it was closer to 4,400. Across all food retailers, almost 10,000 products rose in price over the new year.

Research by price tracking and retail analysts Assosia looking at a basket of common products found an average increase of 6 per cent in the past year. For someone spending £430 a month on groceries, around the UK average, that adds up to an extra £25 a month. The survey picked up an 18 per cent hike on a tin of Heinz baked beans.

It also spotted a 12 per cent rise on beef mince, frozen peas and Jordans cereals. The increase was 11 per cent on supermarket-brand chocolate digestive biscuits, 9 per cent on milk, 8 per cent on eggs and 7 per cent on wholemeal bread. The biggest hike the survey found were 32 per cent on Stork baking spread.  

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