UK trade and the war in Ukraine

The UK is less exposed to the direct trade effects of Russia’s invasion of Ukraine than its European neighbours. However, the indirect and longer-term effects of the war on UK trade could still be significant. Inflationary pressure worldwide will contribute to price rises in the UK, particularly for food and energy. The ongoing effects of both Brexit – which has caused cross-border supply frictions and worker shortages – and the COVID-19 pandemic – which led to pent-up domestic demand and further reduced the labour force – will only increase this upward pressure. The war has prompted increased scrutiny of London’s role as a centre for kleptocratic wealth from Russia and elsewhere, and has led the UK government to impose sanctions against Russian-linked individuals and companies. This could impact inward investment directly, through legal restrictions on business activities, or indirectly, by indicating that the UK is no longer open to trade with certain countries. In the longer term, post-war Ukraine’s future status and trading relationship with the EU could affect the UK, as the process of defining Ukraine’s position with regard to the EU may encourage Brussels to revisit its relations with the UK or even to explore alternative models for other non-member countries on the EU’s periphery. A renewed focus on European security could also encourage the UK and EU to improve trade, security and political ties. The need to enhance security closer to home may also cause the UK to rethink the ‘Indo-Pacific tilt’ outlined in the 2021 Integrated Review.