Neil Shearing, group chief economist at Capital Economics, told a group of influential MPs that inflation could increase by 1 percentage points due to a crackdown on relations with Russia, and by even more if sanctions on energy companies were introduced.
Shearing was one of a panel of experts called before the Treasury Committee to discuss the issues around U.K. sanctions on Russia.
"We've never sanctioned an economy as large as Russia, so I think we should prepare for some disruption," Shearing added. "It will contribute to what's already being called a cost-of-living crisis."
The U.K.'s consumer price index, a measure of inflation, rose to 5.5% in the year to January 2022, putting households finances under pressure. And the Bank of England said at its last meeting on Feb. 3 that inflation would peak at 7.25% in April, when energy prices and taxes rises kick in.
Shearing said that inflation will likely rise by another percentage point compared to a pre-conflict baseline, and at least double that if the U.K. introduces energy sanctions on Russia. Similarly, current sanctions will result in an estimated 0.25% to 0.5% reduction in U.K. gross domestic product, he added.
The government has introduced sanctions and asset freezes on more than 100 Russian businesses and individuals, including the Central Bank of the Russian Federation.
Seven major Russian banks have been banned from the SWIFT banking messaging system under European Union sanctions. However, Sberbank and Gazprombank have not been banned from SWIFT, due to their role in processing payments relating to international oil and gas supply.
The energy market contributes around 15% to Russia's economy and has so far remained immune from sanctions, allowing the country a continued source of foreign exchange.
Shearing said that although U.K. banks weren't particularly exposed to Russian markets, those in Austria and Italy did have large books in Russia. "If some of those banks ran into trouble then that is an area of risk, which could ripple through the financial system and affect us," he added.
Tom Keatinge of the Royal United Services Institute, a think tank, said he had predicted in December that the U.K. couldn't impose sanctions on Russia without it becoming an act of economic "self-harm."
Keatinge, who directs the think tanks's Centre for Financial Crime and Security Studies, said that other economies within Europe and beyond could be worse affected than the U.K.
"We are asking countries around the world to make very negative decisions for themselves on behalf of Europe and Ukraine," he said. "We need to be thinking about how will this impact countries that rely on Russia as an export market."
--Editing by Joe Millis.
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