Four years ago, Trump’s biggest funder contacted me regarding this column. Last week, I said I might be waiting a long time for Trump to come good on his deal to end the war in the Ukraine. Amazingly two days later, he announced he would be scooting into Saudi Arabia to meet Mr Putin to do just that. Great to feel wrong for a good reason.
Ukraine is a global agricultural powerhouse. When Ukraine’s Black Sea ports were blocked in early 2022, the country’s wheat exports collapsed from 4.3million tonnes in September 2021 to just 9,100 tonnes in April 2022. With supply chains severed, global wheat prices jumped 58% almost overnight. The UK, which doesn’t directly rely on Ukrainian wheat, still felt the sting as global competition for grain pushed costs higher across the board.
The knock-on effects were brutal. The cost of food in UK supermarkets soared, with bread, pasta, and vegetable oil leading the charge. By March 2023, UK food price inflation hit a 45-year high of 19.2%. Even as inflation cooled to 5% by early 2024, household budgets still bore the scars of the crisis. Prices hadn’t come down – they had just stopped rising as fast.
Food wasn’t the only casualty. In 2021, Russia supplied 24%of the UK’s refined oil imports, alongside 5.9% of crude oil and 4.9% of gas. By June 2022, the UK had severed all Russian energy imports, a moral stand which came with a hefty price tag. Within weeks, wholesale gas prices had surged by 40%, pushing household energy bills to record highs and leaving businesses scrambling to survive.
Higher energy costs fed into everything: transport, farming, food processing – each stage adding another layer of inflation. The UK’s cost-of-living crisis deepened, wages struggled to keep pace, and interest rates soared in a desperate bid to contain the damage, creating more expense.
Some relief has come as global markets adjusted. European gas prices have dropped to more “normal” levels, and Ukrainian grain exports have resumed, albeit in fits and starts. The UN-backed Black Sea Grain Initiative briefly stabilised markets, allowing Ukraine to ship nearly two million tonnes of grain in late 2022. But when Russia pulled out in July 2023, exports plunged again, freaking out food markets.
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Despite this, UK food inflation has eased. Prices for food and non-alcoholic drinks rose by 5% in February 2024, far below the peaks of 2023. But let’s be clear – that doesn’t mean prices are falling. They are simply rising more slowly. The damage has already been done.
A negotiated peace deal would be welcomed by weary consumers, but don’t expect an immediate reversal of fortunes. Any economic windfall depends on the terms of the agreement. The biggest factor? Gas.
European leaders are already debating whether to restart Russian gas imports if a settlement is reached. A steady supply of cheaper energy could ease inflation further, lowering production costs for food and other goods.
Food prices, too, could stabilise if Ukrainian farmers regain access to their land and ports. The war slashed Ukraine’s grain production by 29% in 2022/23, and much of its farmland remains unplanted or unharvested. If trade routes open fully, global wheat supply could surge, easing costs worldwide – including here.
Even if a ceasefire is signed, it won’t undo two years of supply chain destruction overnight. It takes time to restore markets, rebuild infrastructure, and regain investor confidence. And while a ceasefire might lower inflation, it won’t bring prices back to pre-war levels.
The more cynical reality? Governments, businesses, and markets don’t tend to rush to cut prices once they’ve risen. We’ve seen it before – energy prices spike in a crisis, but when the crisis ends, companies are much slower to pass savings back to consumers.
For UK households, any meaningful relief from a ceasefire will take months, if not years, to materialise. Expect food and energy costs to remain higher than they were before 2022, but with less volatility. The Bank of England will feel more confident in cutting interest rates, if inflation stays on a downward path, offering some relief for mortgages and borrowing.
As always, the devil will be in the detail – can Europe agree? And, can Trump negotiate without his bravado leveraging?
Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a financial question, call 028 6863 2692 or email info@wwfp.net
