The conflict in Ukraine will have far-reaching economic consequences. The National Institute of Economic and Social Research forecasts that it could knock one percentage point off global GDP in 2023 – equivalent to around a trillion US dollars or £760 billion. The UK will be buffeted by the impacts of rising inflation, driven by soaring energy prices, which will squeeze household incomes and weigh on the recovery.
The UK’s chancellor, Rishi Sunak, may decide that his previous £9 billion package of support for households no longer looks sufficient. That’s likely the main topic of discussion within the Treasury in the run-up to the spring statement on March 23.
But the conflict could have another, less immediate but perhaps more substantial, effect on the government’s fiscal position. Namely, what if Russia’s invasion of Ukraine means that we need to spend more on defence?
