How the War in Ukraine Could Impact the UK Market

The war in Ukraine is a humanitarian disaster that continues to have a devastating impact. Humanitarian efforts have increased, with the EU allocating a further €50 million in humanitarian funding to support the people affected by the Russian invasion, bringing the EU’s total aid funding in response to the war to €143 million. 

The conflict has also impacted the world economy, with oil prices doubling from a year ago and inflation soaring to new heights. In the UK, the Office of Budget Responsibility (OBR) forecasted that inflation would peak at 9% at the end of 2022 – a dramatic update from its forecast in October 2021, which predicted inflation at slightly over 4%.

The OBR also predicted the UK economy would only grow 1.6% this year, down from its 3.2% October forecast. Furthermore, Chancellor Rishi Sunak stated that, should the EU ban all oil imports from Russia, the war could cost the UK economy £70 billion, with the OBR estimating that these negative factors will lower the average disposable income in the UK by 2%. 

In its March poll of 689 UK business leaders, the Institute of Directors found only 11% agreed with the statement that the Ukraine crisis ‘won’t significantly impact my business’. It found that while direct effects resulting from disruption to trading activities in the region are expected to impact just 12% of businesses, the vast majority will be indirectly affected. For example: 

• 71% expect to be impacted by higher energy prices
• 52% through higher prices of other global commodities
• 61% through its general impact on confidence and/or UK economic growth
• 41% through its effects on global financial markets.

Chief Economist at the Institute of Directors, Kitty Ussher, commented: “All in all, around nine in ten business organisations in the UK expect to be affected in some way, whether it’s through higher costs, an uncertain operating environment, or simply management bandwidth as leadership teams replan their operations at speed in the light of a rapidly changing, uncertain and ultimately tragic situation.”

Higher energy prices and inflation are set to squeeze those businesses forced to raise salaries to secure the talent they need amidst ongoing skills shortages across multiple sectors. Economists from independent thinktank the Resolution Foundation, which monitors living standards, said that wage growth would soon be offset by the cost of living squeeze, meaning workers will no longer feel the benefits of a buoyant labour market. 

It comes at a time when business advisory firm BDO revealed that UK companies had reported the fastest growth in the labour market since February 2020. Its index rose for a fifth consecutive month to 112.74 in March, up two points from February, with anything above 95 considered growth. 

Partner at BDO, Kaley Crossthwaite, said: “The labour market has shown resilience throughout the pandemic and then continued growth as restrictions have gradually lifted. While it’s reassuring to see employment return to near pre-pandemic levels, this strong form could come to an end as the cost of living crisis, rising inflation and wider geopolitical matters distract businesses from growth and place pressure on the employment index.”

Despite a challenging outlook, businesses are exploring ways to navigate further uncertainty and lend support to the Ukrainian people during this crisis. A recent survey of 250 hiring decision-makers conducted by Reed.co.uk revealed that 70% of employers agree that an increase in Ukrainian workers could ease the UK labour shortages, with 80% stating they would hire a Ukrainian refugee if given the opportunity.

As reported by the Financial Times, large organisations, including PwC and Portman Dental Group, have signed up for a scheme to sponsor hundreds of Ukrainian refugees seeking employment in the UK. The consortium, brought together by British entrepreneur Emma Sinclair, will see each company help 50 refugees to learn English and receive resettlement support. At the same time, other groups agreed to provide training and help for refugees to rebuild their lives in the UK.

Looking to the future 

As a business and individuals, we are passionate about making a difference to those in need; our team have been involved in visits to Poland and support firsthand during humanitarian crises. For example, we’re working with our network to support the delivery of essential items to women and children in Ukraine.

During such uncertain times, McCarthy is on-hand to support businesses and professionals. Whether your company wants to get involved in an initiative to support refugees or you’re looking for a role that will help you navigate the rising cost of living, our team is available for a confidential and no-obligation chat. We’ll help you in any way we can or guide you to the right place. Call us on 0161 828 8726. Alternatively, email enquiries@mccarthyrecruitment.com and tell us a good time to call you back.