Reports of Russian’s Using Chemical Weapons
“There are some thing that are beyond the pale, and the use of chemical weapons will get a response and all options are on the table for what the response could be” – those words from Armed Forces minister James Heappey after reports that Russia may have used chemical agents in Mariupol. The death toll in the city was expected to be in the thousands, before reports of chemical weapons being used arose. Western governments will want to wait for firm confirmation that this has happened before making any moves, but most leaders are united in their view that this is a “red line” – though this was also a red line under the Obama administration in Syria and when Assad killed almost 1,500 people with Sarin gas he did nothing.Russian news agency Interfax confirmed that Gazprom is going to continue to deliver Russian gas to Europe in line with orders. Today 74.5m cubic metres will be delivered through pipelines that run through Ukraine. There’s an interesting New York Times podcast entitled “how Germany’s approach to Russia backfired” which is worth a listen. The long and short of it is that they were warned about dependency, but rebuffed the concerns because they were of the mind that Russia had as much to lose as they did. The range of GDP loss forecasts if gas does stop flowing to Russia are wide ranging, but it would be a huge global financial crisis sized blow to their economy. That said, this Guardian article talks about what they are doing to try and prepare for the that happening (through their choice or Russia’s).
Cost of Rebuilding Ukraine
UK Labour Market
Moreover, since most economists consider around 3% unemployment to represent ‘full employment’, today’s figures suggest that the UK labour market is not far off this level. The paradox however is that the number of job vacancies in the UK reached 1.29m – its highest on record. Hence, as unemployment continues to decrease, while job vaccines increase stresses will continue to manifest themselves in the UK labour market and economy more generally. For example, many economists are warning that this will likely lead to higher wages being offered which in turn could exacerbate inflation. The ONS also noted a major disparity between wage growth in the public and private sector with the former seeing growth of 1.9% while the latter sees 6.2%, hence as the rising cost in living bites households across the UK, it is likely that there will be more pressure on the public sector to increase wages.
Inflation Set to Rise. UK and US
Following the US’ inflation print, UK CPI figures will be released at 06:00 am tomorrow where the market predicts a print of 6.7%. This would similarly represent a considerable acceleration from last month’s print of 6.2%, although given that this will record inflation from March it will not take into consideration the 54% rise in the energy price cap which came into effect this month. What’s more is that the energy price cap is expected to rise by a further 40% in October and as such the OBR are now predicting that inflation will peak at close to 9% in Q4 2022.
Have a great day.