The war in Ukraine is a catastrophe for the world which will cut global economic growth

By Suzanne Evans, Director, Political Insight

The war in Ukraine is a catastrophe for the world which will cut global economic growth, the president of the World Bank has told the BBC. "The war in Ukraine comes at a bad time for the world because inflation was already rising," said David Malpass. He said the economic impact of the war stretches beyond Ukraine's borders, and the rises in global energy prices in particular "hit the poor the most, as does inflation". Food prices have also been pushed up by the war, and "are a very real consideration and problem for people in poor countries". Together, Russia and Ukraine account for 60% of global production and 28.9% of global wheat exports according to JP Morgan. Wheat prices on the Chicago future exchange have been trading at 14-year highs. Sanctions are restricting export of food from Russia, and Ukrainian supplies have stopped because fighting has closed the country's ports. "There's no way to adjust quickly enough to the loss of supply from Ukraine and from Russia, and so that adds to prices," said Malpass. The World Bank has committed $7.9bn to help develop Ukraine's economy since the 2014 revolution. Less than a month before the Russian invasion, Ukraine's independent central bankforecast that the $180bn economy would grow 3.4% this year, after the difficulties of the pandemic.
 
Russia’s sovereign credit rating has been cut by six notches to "junk" status by Moody’s and Fitch after the ratings agencies said they were uncertain the country could service its debt. The country’s long-term foreign currency issuer default rating was downgraded by Fitch to B from BBB, while Moody's lowered its long-term issue and senior unsecured debt ratings for both local and foreign currency from Baa3 to B3. Both Moody’s and Fitch placed them under review for further demotion, citing recent sanctions as a major hit to economic growth, as well as ongoing domestic and geopolitical uncertainty. Fitch, which also downgraded 10 Ukrainian companies, said the only other precedent to such a large downgrade on a single sovereign entity was South Korea in 1997.
 
The Moscow Stock Exchange remains closed. Trading was suspended on Monday.
 
The BBC has revealed that the Ukraine government raised 8.1bn hryvnia (£202m) from its auction of war bonds on Tuesday, which have an 11% interest rate. Now Ukraine's government is looking to issue non-fungible tokens(NFTs) to fund its military as they defend the country against the Russian invasion. The announcement on Twitter by deputy prime minister Mykhailo Fedorov said the NFTs will be launched "soon". He added however that there were no plans to sell fungible tokens, of which cryptocurrencies are a prime example. On Saturday, the official Twitter account of the Ukraine government posted this message: "Stand with the people of Ukraine. Now accepting cryptocurrency donations. Bitcoin, Ethereum and USDT." It posted addresses for two cryptocurrency wallets which collected $5.4m (£4m) within eight hours.
 
While Ukraine is welcoming cryptocurrency donations, anti-cryptocurrency US senators are taking the opportunity of the Russia/Ukraine war to push for legislation against it, saying they want to prevent Russia from using it to avoid sanctions. Cryptocurrency markets have risen sharply since Russian tanks crossed the border into Ukraine last Thursday, with bitcoin 16% up in a week to $43,324 (£32.521). Rouble to bitcoin trading has also soared on cryptocurrency exchanges, with the daily trade volume topping $16m (£12m) on the first day of the invasion, its highest this year, Yahoo Finance UK says. On Wednesday however, a letter to the US Treasury, headed by US senator and crypto opponent Elizabeth Warren, stated that “a strong enforcement of sanctions compliance in the cryptocurrency industry is critical given that digital assets, which allow entities to bypass the traditional financial system, may increasingly be used as a tool for sanctions evasion”. Most major cryptocurrency exchanges have refused requests from Ukraine to block Russians from using their platforms.
 
The UK Government has imposed additional sanctions on Russia, this time blocking Russian companies in the aviation and space industry from buying British insurance or reinsurance services. London is a key global centre for aviation and space cover, with companies from around the world using Lloyd’s of London and other insurance providers for commercial insurance and reinsurance. “In taking such action, the UK is demonstrating its commitment to apply severe economic sanctions in response to Russia’s invasion of Ukraine,” the Treasury said in a statement issued yesterday.
 
Ukraine's largest energy firm has told the BBC the West should stop buying gas and oil from Russia. Yuriy Vitrenko, who runs Naftogaz, said Russian sanctions should be stronger and targeted directly at energy, arguing there should be a “very clear choice to get rid of this dependency on Russian gas and oil". He accused the Russian President of using the revenue from oil "to kill innocent people". Yesterday, Russia's second largest oil firm, Lukoil, also called for an end to the conflict, stating that it was concerned by the "tragic events in Ukraine". Russian oil and gas exports are currently exempted from Western sanctions.
 
Oil prices continue to climb. Concerns about supply issues because of the war in Ukraine pushed the price of Brent crude, the international benchmark, to over $119 (£89) a barrel yesterday, a 10-year high, and a jump of $20 (£15) in a week. West Texas Intermediate was also trading above $115 on the day, its highest since 2008.
 
The London Stock Exchange (LSE) has suspended trading for a total of 28 companies with strong links to Russia. Trading in energy giants such as Lukoil, Gazprom, EN+, and Rosneft has been suspended, along with Russian bank Sberbank, Novolipetsk Steel, Polyus, Etalon Group, Sistema and Magnit. LSE said the move would have only a minor impact on its business as operations in Russia and Ukraine account for less than 1% of total income, which hit £6.8bn in 2021. The group also announced that Russia will be removed from some of the international indices run by its FTSE Russelldivision from the open of trading on 7 March. Around £430bn has been wiped off the London-listed shares of Russian firms in the last two weeks alone as western sanctions bite.
 
Market uncertainty over the escalating Ukraine conflict and concerns over soaring inflation saw UK investors pull millions of pounds out of investment funds in January. Figures published by the Investment Association shows UK savers withdrew £642m out of retail funds, the highest level since March 2020.
 
British aircraft parts maker Meggitt Plc has flagged a possible "material" write down on a Russian aircraft programme in the next 12 months amid the Ukraine crisis, after posting a lower annual profit hit by supply disruptions. Reuters says the company, a component supplier for aircraft makers including Boeing and Airbus, has been trying to mitigate supply chain disruptions, curtail lead times and look for alternatives for electronic parts due to pandemic-related hindrances. Meggitt is one of the suppliers to Russia-based Irkut's MC-21aircraft development programme, which is due to enter service this year. Irkut's parent firm United Aircraft Corporation is majority owned by Rostec,Russia's state aerospace and defence conglomerate. Meggitt said underlying operating profit was £177.3 million for the year ending Dec. 31, compared with £190.5 million a year earlier. Meggitt, which also supplies wheel and brake systems for military fighter programmes, said its £6.3 billion pound takeover by US peer Parker-Hannifin was on track to close in the third quarter of this year, but this is by no means certain because the deal has raised national security concerns. Senior Plc, which supplies cabin air circulation systems for the MC-21, also said earlier this week that the Ukraine-Russia crisis could affect sales to that programme.
 
Marks & Spencer has halted shipments to its Russian business run by Turkish franchise partners,
It is the latest brand to seek to sever ties with Russia following the invasion, with the likes of Boohoo, Ikea and H&M all announcing plans to stop Russian sales in recent days. M&S has more than 40 franchise-run stores in Russia, with the majority of these based in Moscow.
 
Diageo has paused exports to Ukraine and Russia. The drinks giant’s brands include Smirnoff vodka, Johnnie Walker whisky, Captain Morgan rum, Baileys, Tanqueray gin and Guinness.
 
Melrose Industries has shelved a planned payout to shareholders because of concerns caused by Russia's invasion of Ukraine. Reporting a narrower annual loss, the industrial turnaround company said it was holding on to its capital because of unease in the markets. Melrose paid out £729m to shareholders in 2021 and at the time said it had scope to return further "significant" funds in 2022.
 
According to the Bank of England’s (BoE) monthly decision maker panel, British firms expect inflation to be 5% in a year’s time, up from 4.3% in January’s survey. This matched the reading posted in December, which was the highest since the series started in January 2017. The decision maker panel is a survey of chief financial officers from small, medium and large UK business, used by the BoE to monitor developments in the economy and to track businesses’ views. Threadneedle Street surveyed businesses between 4 and 18 February and received 2,699 responses, Yahoo Finance UK says.
 
The Ukraine war and soaring inflation is set to halve the UK’s economic growth this year, The British Chamber of Commerce (BCC) predicts, downgrading its expectations for GDP growth in 2022 to 3.6% from 4.2% in its previous December forecast. This is less than half the growth of 7.5% recorded last year, reflecting the poor outlook for consumer spending, and a weaker than expected rebound in business investment. The BCC now predicts consumer spending to grow at 4.4% this year, down from 6.9%.
 
UK service sector growth rebounded to an 8-month high in February amid increased activity and new orders as the Omicron wave faded. According to IHS Markit’s PMI business activity index, the reading soared to 60.5 in February, up from 54.1 the previous month, signalling a steep rise in output. It was the fastest increase since June 2021. Any reading above 50 indicates growth.
 
Britain's competition regulator has launched a probe into government contractor Mitie Group over possible law breaches involving contracts for immigrant removal centres. The Competition and Markets Authority (CMA) said this morning that the investigation involved Mitie Group, Mitie Care and Custody Ltd. and PAE Inc. and potential anticompetitive conduct in relation to the government's procurement processes for the contracts at the Heathrow and Derwentside Immigration Removal Centers. Mitie said it withdrew from the Derwentside tender process, without submitting a bid, due to the Home Office's 'lotting' conditions, which would have prevented a single bidder from winning both contracts. The company confirmed it was still engaged in the Heathrow tender process, through Mitie Care and Custody Limited. "Mitie strongly condemns anti-competitive practices and is co-operating fully with the CMA and the investigation. Mitie is confident that it has no case to answer and will be fully exonerated," the company said in response.
 
Shares in tech firm Darktrace soared yesterday after the company reported a jump in profits amid strong cyber demand and raised its 2022 outlook. The British cybersecurity group raised its full-year revenue and margin guidance for the second time in three months, reflecting strong customer growth and retention. Revenues at the FTSE 250 company jumped 52.3% to £144m versus the same period in 2020, driven by a 39.6% year-on-year growth in its customer base. CEO Poppy Gustafsson said that the current geopolitical situation has "heightened the urgency for businesses and governments to improve cyber resilience".
 
Private hospital operator Spire Healthcare has reported a strong rise in annual profit, driven by "significant" demand for private treatment. Core earnings rose 10.6% to £178.2m but remained 5.7% lower than pre-pandemic 2019 levels. Revenue climbed above £1bn first time with 20.3% growth year-on-year. Covid-related costs came in at £53m and the company warned that while self-isolation restrictions have now been lifted in the UK, expenses "will continue through 2022". Spire also targeted savings of at least £15m this year to offset inflationary and other cost increases.
 
Rentokil posted a jump in full-year profits and revenue yesterday following a particularly strong performance from its pest control business. Adjusted pre-tax profit for 2021 rose 22.1% to £416.5m, with ongoing revenue up 9.8% at £2.9bn. Pre-tax profit was up 41.5% at £325.1m, with revenue 5.5% higher at just under £3bn. Rentokil highlighted "excellent" performance from its North America business, slightly offset by weaker performances in its Australia, New Zealand, Malaysia and Indonesia operations, which were dented by lockdowns in the second half. Rentokil’s core hygiene business, excluding disinfection, delivered an 8.2% increase in ongoing revenue to £555.6m, reflecting good performances in the UK, Europe and Latin America. Overall hygiene revenue declined by 8.4% to £673.4m, however, reflecting the anticipated tapering of disinfection services.
 
ITV yesterday reported a 46% rise in annual profit as revenue rebounded from Covid-19 restriction but the company's shares nevertheless dropped 14% to their lowest value since November 2020 because of concerns about the broadcaster’s spending plans. Operating profit hit £519m in the year to the end of December from a year earlier as external revenue increased 24% to £3.45bn, but shareholders were spooked by the FTSE 100 firm’s plans to invest some £1.4bn in digital content provision in 2022.  
 
British Steel is set to build new £26 million facility at its Skinningrove plant in North Yorkshire - the steelmaker's biggest single investment in its special profiles business for more than 30 years.
 
Gaming giant Entain, which owns Ladbrokes, is to repay £44m of the furlough money it claimed during the pandemic, while keeping £57.5m, the BBC reports. Carolyn Harris MP called it "absolutely shameful" that Entain was not repaying it all, despite soaring profits. the group made £393m in pre-tax profit in 2021, up 125% on the year before. Entain said the furlough scheme had helped to protect 14,000 jobs, and a “more certain medium-term outlook” made the partial repayment possible. Entain has around 3,000 betting shops in the UK branded Ladbrokes or Coral – which it had to close for large parts of 2020 and 2021 because of coronavirus restrictions. However, punters did not stop betting, they simply moved online. Entain’s online business grew rapidly and helped push the group’s revenues up 8% last year.
 
Bet365 boss Denise Coates took home about £300m during its last financial year - £170m down on the previous year - as growth stalled, the BBC says. The billionaire founder of the online gambling firm received £250m in salary and a share of the company's pay-out of £97.5m in dividends. Coates, one of Britain's wealthiest women and a major philanthropist, has received a total of about £1.3bn from the business in the past five years.

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