Tumbling oil prices on world markets are expected to pull British petrol prices down even further in the coming weeks, with economists pushing back their predictions for when interest rates will finally rise.
Brent oil prices plummeted more than $2 a barrel during yesterday’s trading, touching their lowest levels since 2010. At around $88 per barrel, the price is 30 per cent below its June peak of $115.
And households have begun to save money at the pump with average unleaded prices now at 127p per litre, according to Experian Catalist data – 11p cheaper than in September 2013. Today supermarkets will cut prices still further.
And a further drop could see inflation fall towards the one per cent mark, easing pressure on Bank of England governor Mark Carney to lift interest rates. The latest consumer price index number is published this morning.
Commenting in the US yesterday, Carney refused to confirm whether or not he still believes that an interest rate hike is getting nearer.
“We have long been expecting the Bank of England to first raise interest rates in February,” said IHS Global Insight’s Howard Archer. “But there is clearly a very real and mounting possibility that the bank could delay acting until nearer mid-year .”
Supermarkets Tesco, Asda and Sainsbury’s will slash petrol prices today for the third time in three months. Asda and Sainsburys have cut the price of diesel by 2p per litre and by up to 1p off petrol. Tesco has cut the cost of petrol and diesel by 1p per litre. It comes just two weeks after their last round of cuts.
Meanwhile economist Alan Clarke from Scotiabank told City A.M. that petrol prices should dip further. “We’re down to 126p-128p per litre. If you take the simplistic relationship between the price of oil and price of petrol you should be talking low 120s in the next month or two.”
Prices could go below 120p should oil fall to $80 per barrel, Clarke said. And supermarket competition should lead to price falls being passed on – and inflation dropping again.
“Roughly speaking, 10 per cent off the oil price takes about 0.1–0.2 percentage points off inflation directly. So that scenario [$80 per barrel] would probably mean inflation around or below one per cent,” Robert Wood, economist at Berenberg, told City A.M.
Oil prices have fallen due to weak economic data from the Eurozone while supply has been kept high. There is also a possible slowdown in China. The growth of shale gas in the US has also been a factor.