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The Economic Consequences of the Ukraine War for UK Household Incomes
Russia’s invasion of Ukraine has further raised the prospects of stagflation, and is likely to have a significant impact on the UK economy: in particular, worsening the squeeze on household incomes. Using NiGEM to understand the effects of the shock, this analysis explores the channels through which the conflict is likely to impact.
Pub. Date
11 May, 2022
Pub. Type
Authors
Urvish Patel
Related Themes
Macro-Economic Modelling and ForecastingMain points
- Higher commodity prices and trade spillovers represent major channels through which the war will affect economic activity in the UK, and increased uncertainty weighing on confidence also has the potential to further reduce growth.
- Higher inflation, both directly as a result of higher commodity prices and indirectly through increased unit costs, will add to the squeeze on real household incomes.
- If rising inflation leads to significantly tighter monetary policy, there will be a further reduction in demand, but if monetary policy is not tightened then inflation could be even higher and more persistent.
- There needs to be larger fiscal policy responses, as the only agent with the capacity to smooth the shock to national income without exacerbating it in the short-to-medium term is the government.
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