The threat of a Russian invasion of Ukraine has left financial markets jittery but not yet panicky. Unsurprisingly, shares took a tumble on the world’s bourses and there was a brief rise in oil prices to just over $96 a barrel.
Investors were taking few chances and sought out traditional safe havens such as the US dollar, but there was little sense that the world was three about to break out. If anything, financial markets seem to be underestimating the risks.
War in eastern Europe would deliver a double blow: affecting consumer and business confidence, while at the same time giving an added twist to already strong inflationary pressures. The fear is that Putin would respond to western sanctions by deploying economic weapons of his own.
That looks a reasonable assumption. Russia provides the EU with 40% of its oil products and coal, and a fifth of its natural gas. It is the world’s biggest exporter of fertilisers, and the palladium used by the auto industry in catalytic converters.
So, while it is the case that Russia is a big landmass with a tiny economy (its GDP is smaller than Italy’s, for example) it can have an impact disproportionate to its size. Indeed, the impact of the tension between Moscow and Kyiv is already being felt by motorists in the UK. Petrol prices are already at a record high and forecast to go higher.
Those who remain relatively relaxed say events in Ukraine will have a much smaller impact on markets than the fading of the Covid threat, supply-side bottlenecks and the interest rate decisions made by the Federal Reserve. Even if they are right, though, it is clear that supply-side problems and inflationary pressure would be worsened by military conflict in Ukraine.
In theory, an increase in the cost of living caused by a one-off event is exactly the sort of supply shock that central banks tend to “look through” – that is, do nothing about in the belief that they will have no lasting effects .
But Simon MacAdam of Capital Economics says a Russian invasion or a ratcheting-up of sanctions could add as much as two percentage points to inflation in the west. Would the Bank of England – already forecasting inflation of more than 7% this spring – really turn a blind eye if instead it was nudging 10%? It hardly seems likely.
British workers put in longest hours in EU
By international standards, Britain has a long-hours culture. The average working week is almost 42 hours, and 12% of people work more than 50 hours. Other countries put in fewer weekly hours but get more out of their employees when they are in the workplace.
So, for many years there has been a campaign to shorten the working week to four days without loss of pay on the grounds that workers will be more committed to their jobs and hence more productive. The basic argument is that employers will get as much out of happy workers in four days as they would out of unhappy workers in five, and their wellbeing will improve.
The pandemic has brought a sharper focus to the debate, with a boom in working from home and hybrid working. Now the Welsh government is being urged by its future generations commissioner, Sophie Howe, to launch a four-day-week trial in parts of the public sector.
This might be the worst time to test out the idea, given that vacancies are at record levels and money is tight. NHS administrators will rightly ask what the implications may be for waiting lists. Schools want to know whether they will have to hire more supply teachers.
In fact, this is the best time for a trial, because it means the idea will be examined on a small scale under the toughest conditions. Wales should go for it.
What are the odds?
Just over 100 MPs were asked to answer a simple probability question by the Royal Statistical Society: the chances of heads coming up both times when a coin is tossed twice. Given that they are ultimately responsible for spending more than £1tn of taxpayers’ money, the result was not altogether reassuring. Only 52% of lawmakers were able to come up with the right answer, 25%.