The Russian invasion of Ukraine and energy prices. European natural gas prices increased by almost 70% following the Russian invasion of Ukraine last week. Some industry analysts have forecast that average household energy bills could exceed £3000 a year when OfGem’s energy price cap is reviewed again in October. The average prices of petrol and diesel are already now above £1.50 a litre, compared with around £1.10 two years ago. 

  • Context. Following the dramatic rise in global gas prices over recent months, on 3 February OfGem increased the energy price cap, allowing firms to pass higher wholesale costs onto consumers. Average household bills are set to increase from £1277 to £1971 in April. The government simultaneously announced an ‘Energy Bills Rebate scheme’ to partially offset higher bills. The government may come under pressure to increase the scale of its support measures if wholesale energy costs remain higher than previously forecast as a result of current events. For more analysis read our previous Digest. 
  • Analysis. Carbon Brief has collated a comprehensive Q&A on the implications of the invasion of Ukraine for energy and climate change, while the Oxford Institute of Energy Studies analyses the likely impacts on the UK. 

UK energy security and oil and gas. The invasion of Ukraine has prompted renewed debate about the UK’s energy security. Climate sceptic lobby group Net Zero Watch issued a press release calling for further exploration in the North Sea and removing the ban on fracking to “substitute for Britain’s rapidly rising imports which are increasingly dependent on Russia’s European gas flows”. 29 Conservative MPs and former Brexit minister Lord Frost had earlier signed a letter calling for the return of fracking in the UK

Integrating climate, energy and national security. For many commentators the invasion of Ukraine has reinforced the case for a clean energy transition. Drawing the connections between energy, climate and national security, BusinessGreen’s James Murray explained why ‘petrostates’ such as Russia feel squeezed by global climate agreements, and ‘the threat clean technologies pose to the revenue streams that keep them in power’. In a New Statesman essay last year economic historian Adam Tooze made the wider case

Weekly Updates

Trade and monetary policy

Economic sanctions on Russia’s central bank. Economic sanctions on Russia imposed by western countries have blocked the Russian central bank’s ability to sell its $640bn worth of reserves on international markets, thereby undermining its ability to support its exchange rate, insure the banking system, bail out external state and private debts and manage the country’s sovereign wealth fund. This has sparked a near-30% fall in the value of the rouble, a run on Russian banks as depositors look to exchange roubles for foreign currencies, and an increase in interest rates from 9.5% to 20%.

‘Weaponising central banks’. Analysing the new sanctions, PEF’s James Meadway argues that the ‘weaponization of central banking’ has precedents. In 2010 the European Central Bank threatened the Irish government with the collapse of its banking system if it did not accept the ECB/EU/IMF bailout (leaked documents here) and in 2015 ‘the ECB repeatedly threatened to end emergency support for Greece’s insolvent banks if the newly-elected Syriza government did not accept the bailout conditions’.


Supporting Ukrainian refugees. A coalition of over 50 charities, NGOs and aid agencies have signed a joint letter calling on the government to implement a ‘significant, well-resourced UK programme, working with councils across the country, to welcome Ukrainians who need sanctuary’. The letter criticises the Nationality and Borders Bill for criminalising those ‘who take dangerous journeys over land to the UK’. These clauses of the Bill have now been defeated in the House of Lords.

Asylum system disfunction. Home Office data published last week shows that there are now 100,000 asylum seekers awaiting an initial decision on their cases, triple the number of four years ago. IPPR described the asylum system as ‘struggling to cope and in need of urgent reform’.

Fiscal policy and tax

Chancellor’s Mais lecture emphasises free markets (within limits). Chancellor Rishi Sunak gave the Mais lecture last week, describing ‘a different vision for our economy… built on a new culture of enterprise.’ 

  • Role of the state. In his lecture Sunak stressed the importance of markets and free enterprise in generating wealth and prosperity. But he also recognised three ‘limits’ of free markets: First, ‘it is incumbent on government to support people, especially those unable to support themselves, and through the welfare state, public services and education.’ Second, Sunak acknowledged that ‘we need to guard against the market reaching too far into these realms, eroding the bonds between us, and turning a market economy into a market society.’ Third, ‘the market has limits in dealing with externalities like climate change, and periods of profound disruption like wars, financial crises, or pandemics’.
  • Improving productivity is central to his vision. Sunak set out the central priority of improving productivity through ‘fostering a new culture of enterprise’. He emphasised three routes to this: encouraging more private sector capital investment, improving the technical skills of workers and increasing business investment in research and development. He rejected a larger role for the state in boosting or guiding investment. 
  • Tax politics. Sunak distanced himself from Conservative calls for ‘supposedly self-funding tax cuts’. David Gauke, former Conservative Justice Secretary, explains how Sunak’s speech is intended to distance himself from other Conservative leadership candidates where ‘there is already talk of an “axe Rishi’s tax” campaign from Liz Truss’.

Labour and the private sector. In a parallel speech on the same day, Opposition Leader Keir Starmer had planned to set out six economic principles, the first of which was “valuing the role of private companies as a partner to the state”. However this was cancelled following Russia’s invasion of Ukraine.

IMF suggests a wealth tax for the UK. The International Monetary Fund has urged the UK government to consider ‘raising windfall or wealth taxes’ to reduce inflationary pressure and raise revenues for decarbonisation and levelling up. This would be preferable, it argued, to the sole use of higher interest rates to tackle inflation. The FT reports here.

Climate change

IPCC Working Group II report. The latest report of the Sixth Assessment Report (AR6) of the Intergovernmental Panel on Climate Change (IPCC) was released this week, detailing the impacts of climate change on ecosystems, biodiversity, and human communities and the capacities and limits of the natural world and human societies to adapt. UN Secretary-General António Guterres described the report as “an atlas of human suffering and a damning indictment of failed climate leadership”. The report’s Summary for Policymakers was also released, having been approved by 195 national governments. Carbon Brief offered a comprehensive Q&A on the report

  • Analysis. New Economy Digest will analyse the report and associated commentary in next week’s In Focus.