Market Loop - 🔥West turns up the heat on Russia

POLITICS
West turns up the heat on Russia

What’s going on?
Yesterday the UK, US and EU announced new sanctions on Russia after President Putin ramped up aggression by ordering troops into two regions in eastern Ukraine which Boris Johnson said amounted to a "renewed invasion”.
 

The aim of sanctions is to hit the wealthy and powerful in the targeted country where it hurts financially. 

Earlier this month the UK government put in place new legislation enabling it to apply broader sanctions than it previously could on Russian people and businesses supporting the Russian government in a bid to deter further escalations.

But now the threats are being carried out after Russian soldiers entered two breakaway Ukrainian regions.

The UK assets of five Russian banks and three Russian billionaires linked to President Putin will be frozen. Critics noted that this was relatively tame compared to other countries but Boris Johnson added that this was just a "first tranche" of measures and more sanctions would be on the way if Russia launches a full-scale invasion. 

The EU and the US are also imposing their own package of sanctions to put Russia off from invading. Most notably Germany is withdrawing its approval of the controversial Nord Stream 2 gas pipeline between itself and Russia, despite the damage that this could have on Germany’s own economy - 40% of German gas supplies come from Russia.

The growing tensions are unsettling the energy markets. Brent crude oil closed in on $100 a barrel for the first time since 2014. 

As one of the biggest oil and gas producers Russia could retaliate by turning its back on the many European countries reliant on its supplies, which would raise already elevated energy prices.

Zooming out

ECONOMY
UK records first budget surplus since Covid began

For the first time in two years UK public finances generated more income than it spent. The £3bn budget surplus last month was driven by stronger tax revenues as the economy reopened and lower spending on consumption and subsidies.

This was equivalent to £5.4bn less borrowing than in January 2021 but still a £7.0bn smaller surplus than in January 2020, before the pandemic.

The national debt – the total amount owed by the government accumulated over the years - stands at £2.3tr, the same as 95% of the UK economy and the highest proportion since the 1960s. 

Inflation, which is running at a 30-year high and expected to reach 7% in April, pushed up the interest payments on the national debt to £6.1bn in January, an increase of £4.5bn from the same month last year. The highest for that month since records began in April 1997.

During the pandemic the government spent £400bn shoring up the economy with measures such as furlough and the universal free Covid testing.

Now that the final remaining Covid restrictions and support measures are being wound back, the government will hope it can cut spending and lessen the burden on public finances.