Monday, June 27, 2022 | Dhu al-Qaadah 27, 1443 H
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Oil and gas price rise amid vicious war

Russian attack on Ukraine has sent global energy prices spiralling as inflation fears continue to rise. The impact, of Russia escalating its assault on Ukraine, will send the cost of living in the UK and Europe to record level, reveal new forecasts by top analysts.

Fears over Moscow squeezing oil and gas flows in retaliation to Western sanctions and the inevitable price rise, has raised concern of inflation in Britain peaking at 9.5 per cent in October, according to Goldman Sachs. The elevated energy prices could result in a 55 per cent hike to the energy price cap in October, taking annual energy bills above £3,000 for most households in UK, Goldman warned.

The cap will already rise by a similar rate in April, underlining the severity of the cost of living crunch already biting the people. UK petrol prices hit another record high last week. The supply squeeze is intensified by a British ban on Russian cargoes or vessels docking in the UK. The additional cap rise will hoist inflation at a rate not seen in Britain since 1990.

Goldman said the Bank of England will look through the energy shock and send interest rates to 1.75 per cent by November. Consumers are certain to slash spending in the face of intense pressure on their living standards, sparking concern over whether the UK’s economic recovery from the Covid-19 crisis will run out of steam this year.

“We expect the high inflation to lead to cost-of-living pressures and weigh on growth over the course of this year'', said analysts at Goldman. Under existing forecasts by the Bank of England projecting an inflation peak of 7.25 per cent this April, UK living standards were already expected to fall at the steepest rate since the 1940s.

If Goldman’s projections materialise, the hit to households’ spending power will be substantially worse. The warning came as fellow banking giant JP Morgan said rampant inflation will cause economic growth to “slow to a crawl”.

Although Britain is much less reliant on Russia for energy supplies than Europe, the cost of securing oil and gas is set in energy markets on the continent, meaning the UK will almost certainly have to pay more for inventories. Such high levels of inflation would also put more pressure on Rishi Sunak the chancellor, with vast tranches of UK government debt repayments tied to the measure.

Prices among the countries that use the euro are accelerating at the fastest rate on record, according to official figures, published this month. Inflation in the eurozone hit 5.8 per cent this month, the highest recorded since the introduction of the euro, according to Eurostat, the bloc’s statistics agency. Rapidly accelerating prices is piling pressure on the European Central Bank, (ECB) to act to tame inflation. The bloc’s central bank has left interest rates in negative territory for several years.

The conflict between Russia and Ukraine is widely expected to speed up the rate of price increases in Europe if future Western sanctions target energy flow from Moscow into the continent. Europe is heavily reliant on Russia for energy supplies, with the area’s economic powerhouse, Germany, sourcing around 40 per cent of its natural gas inventories from Moscow.

Oil prices jumped around 5 per cent earlier this month, with Brent Crude at its highest for the first time in nearly a decade. European gas futures — contracts for gas supplies at a later date — soared 36 per cent on fears over the bloc’s gas supplies being squeezed.

Concerns about the negative impact on the global economy from the Russia-Ukraine conflict has prompted traders to pare back their bets on the pace of the world’s top central banks tightening cycles.

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