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Changing times and the challenges for business leaders

The conflict in Ukraine has had a ripple effect across the globe. Here we explore some changes that are having an impact on British businesses and their employees, with links to resources that might be useful to you.

The economic impact

The humanitarian crisis in Ukraine puts the UK economy back on a path of heightened uncertainty. The biggest impact on the UK is expected to be the indirect effects of price rises and volatility in commodity markets – particularly energy. Ofgem’s decision to raise the energy price cap from 1st April will add to inflationary pressure and with no cap on the price businesses pay for energy, higher energy costs will put pressure on profitability for some firms. A recent report by payment provider Tyl by NatWest found that 70 per cent of SMEs believe the cost of their energy bill has negatively affected their businesses’ growth. A further 54 per cent stated that they were currently spending £3,000 or more on annual energy bills;  a significant amount of revenue for many small businesses. The Chancellor hasn’t yet offered any support to UK SMEs but the date for the 2022 Spring Statement is approaching, on 23 March.

Russia and Ukraine are both major exporters of non-energy commodities, particularly industrial metals and foodstuffs, as well as fertilisers. There are reports that the closure of Ukrainian ports and rail is disrupting exports of agriculture and metals. These supply chain issues will cause higher prices to ripple through to end-users, adding to existing cost pressures for firms in a range of sectors, but particularly automotive, aerospace and technology industries, as well as the construction sector.

It is expected that the Bank of England will raise interest rates further, albeit cautiously, in the coming months.* Consumer price inflation in Britain has already risen to a 30-year high and could rise further still, propelled by the conflict.

Find the latest business insight on CBI.

Tech industry disruption

Ukraine is a valuable, fast-growing hub for tech talent. Its IT development sector exported $6.8bn in IT services in 2021. The country’s minimal bureaucratic hurdles, favourable tax policies and English-speaking developers in time zones that are easier than Asian ones for companies in the US and EU, meant one in five Fortune 500 companies use Ukrainian IT services. These include Microsoft, Google, Samsung and Ring. The current situation puts pressure on the worldwide tech talent shortage.

Ukraine is a major global supplier of neon gas, a purified gas byproduct of Russian steel manufacturing. It’s used to power the lasers that etch patterns into semiconductor chips, which act as the technological brains in our phones, laptops, smart homes, and even cars. Around half of the world’s neon gas comes from the country and the US is said to import up to 90% of its semiconductor-grade neon from Ukraine and Russia. The industry is already wrestling with shortages as it struggles to keep up with the post-pandemic demand for devices.

The impact on UK households

Thinktank the Resolution Foundation has warned British households are facing the worst drop in living standards since the mid-1970s, as rising energy prices are set to push inflation to record highs. It added families in the UK are in line for a £1,000 hit to their take-home pay this year, representing a 4% drop in real income and a steep annual loss in spending power. A Telegraph survey found 50% and 48% of people have cut spending on groceries and heating respectively in reaction to rising bills.

In its annual report on the outlook for living standards, the think tank added surging inflation – which could exceed 8% in the coming months – is expected to cause real take-home pay to fall by ten times compared to the aftermath of the 2008 financial crash. Experts said that even before the war in Ukraine, the outlook for living standards was bleak. Soaring energy bills are set to hit low and middle-income families hardest when the price cap is lifted by 54% next month. Businesses we’re working with are considering cost of living salary increases to help retain people and support them during this difficult period.

Supporting your colleagues

For organisations with employees working for them who are permanently located in Russia or Ukraine, it’s vital you’re in regular contact and are aware of how they are affected. Some firms have offered assistance out of the region, providing relocation help for employees and their families and covering expenses. A website HR for Ukraine has been set up to help collate resources on how to support employees based in the country.

As the situation in Ukraine continues, this is going to be an extremely difficult time for employees who are personally affected and those concerned about the wider implications. Employees with family and friends in these locations who are concerned for their welfare are likely to want to keep in regular contact. We’re encouraging our clients to talk to their teams and consider how they can support staff, by offering flexible working, adjusting working hours or adding breaks. Employers should also make themselves aware of the statutory or contractual rights relating to annual leave, sick pay, bereavement leave, and/or parental bereavement leave.

Employee wellbeing

As the unfolding crisis continues to dominate news headlines, employers need to be mindful of the impact that this may be having on their team’s wellbeing. We recommend reminding all your teams of the support options available to them and include all the ways in which staff are able to access support, whether that’s making them aware that they can speak to their line managers and/or mental health first aiders confidentially, or signposting any wellbeing services or Employee Assistance Programme (EAP) you have in place.

If your employees are wanting to take part in humanitarian efforts to help and support people affected by the conflict, consider how you can help them to do this. Several major UK firms have recently joined forces to offer employment to refugees fleeing the conflict in Ukraine. The British Red Cross has launched an emergency appeal to help Ukraine. The charity will be updating its webpage with news on the work its team is doing, and how support will be used to help.  

*Since time of writing the Bank of England base rate rose to 0.50% on 3rd February 2022.

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