(Bloomberg) -- The UK economy suffered the biggest loss of purchasing power since the 1970s oil crisis after Russia’s invasion of Ukraine sparked a surge in energy prices.
The blow is laid bare in new analysis published by the Office for National Statistics on Wednesday. Whereas real GDP rose by 1.9% in the year through the third quarter of 2022, gross domestic income - a measure that adjusts output for the steep rise in imported energy and commodity prices - declined by 0.2%.
“The implications of the terms-of-trade effect is that there is an unavoidable hit to UK real national income, causing a decline in living standards,” the ONS said. “The size and persistence of this terms-of-trade effect will depend on how these prices evolve over the coming years and how much of a net energy importer the UK continues to be.”
The ONS calculated that the terms of trade, the ratio of export prices to import prices, fell by 6.2% during the 12 months, the steepest drop since 1974 when an Arab oil embargo targeting the US and other nations had sent the price of oil soaring.
Other net energy importers like Italy, Germany and Japan suffered an even larger hit to their purchasing power last year. By contrast, the upheaval has been a boon for exporters such as Norway, the US and Canada.
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