Fuel prices fall as the economic outlook worsens
Originally uploaded on August 05, 2022
This week, the Bank of England has warned that the UK is set to slump into a recession comparable to the 2008 financial crisis, driven by the biggest inflation surge in 42 years.
Britain’s economy will shift into reverse in the final three months of this year and is forecast to continue shrinking until the final months of 2023. This outlook would place the current cost of living crisis among the worst recessions the country has experienced.
The surge in global gas and oil prices, caused by Russia’s invasion of Ukraine and Moscow choking gas supplies, has pushed inflation higher. This price surge is the primary driver tipping the UK into recession. Inflation currently sits heavily at 9.4%, with predictions to reach 13% before the end of the year.
In October, higher global gas prices will lift the energy price cap to over £3,500, more than three times higher than a year ago. This, coupled with a tight labour market caused by worker shortages, will intensify domestic inflationary pressures by forcing firms to pass on pay rises, the Bank said.
As a result, the Bank of England has signed off on the biggest interest rate hike in nearly 30 years. The move takes rates to 1.75%, a level that has not been seen since December 2008. This is the sixth interest rate rise in a row, which is a first for the UK economy.
The BoE Governor Andrew Bailey has stated that “output is projected to fall in each quarter from 2022 Q4 to 2023 Q4”. This would be the longest slump since the financial crisis, and more drawn out than the COVID-19 pandemic.
The economy is likely to shed 2.1% over the entire downturn, around the same amount of output lost in the sterling-crisis-driven recession in the early 1990s. On an annual basis, the economy will contract in both 2023 and 2024.
It’s difficult to predict how the economy will react to this crisis moving forwards, especially with the two candidates in the Conservative leadership debate proposing completely different methods of how the Government could react. Rishi Sunak’s proposal is to focus on lowering inflation rates, while current poll leader Liz Truss’s plan revolves around introducing £30 billion worth of tax cuts.
In terms of the fuel market, this recession could, depending on the wider macro-economic factors, lower prices further as demand for oil reduces. The cost of brent crude has fallen to $94 dollars a barrel, the cheapest since February, adding to the downward trend in fuel prices. The dipping prices can be seen across UK forecourts as the recent decline in wholesale oil prices that we’ve seen during the past 6 weeks filter down to the consumer.
As a result, fuel card users can expect to see further decreases of between 4 - 5ppl for the next week.