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The Office of National Statistics (ONS) released its latest outlook this week with the news that current oil prices worldwide have sent UK petrol prices to their highest level for four years.
In positive news, UK inflation has held steady, with the Consumer Price Index (CPI) staying at 2.4% in June, the same figure as in May. The CPIH, which also factors in housing costs, stayed at 2.3%.
With oil prices at a four-year high, it is unsurprising to see these costs passed on to consumers at the pumps. Crude oil prices currently stand at $71 a barrel and appears to be steadily rising.
According to the ONS’ statement, petrol prices have not been this high since September 2014. They reached 128.0p (USD $1.66) per liter, and the cost rose by 2.7p (USD $0.04) per liter between May and June. The ONS also confirmed that this increase is the reason for a plateau in inflation, as it otherwise would have reduced slightly in line with 2018 trends.
The ONS’ Head of Inflation Mike Hardie said that summer sales in clothing shops as well as a drop in the price of computer games are a continuing benefit to consumers. However, a rise in all energy costs, including gas and electricity, quickly negated any lower costs to the public overall.
Before the UK voted to leave the European Union, inflation figures were generally subdued. However, due to market uncertainty in the face of Brexit, a drop in the value of the pound led to significant UK inflation.
The pound appears to have recovered some of its strength, leading to slightly reduced inflation trends this year. Inflation has already come down from 3% in January 2018.
In more good news released by ONS, UK employment has hit its highest-ever level, and wages are continuing to gently increase month by month. In the three months leading up to May, wages saw an average increase of 2.7% across the UK.
Markets reacted to the news of steady inflation negatively, sending the value of the pound dropping. News of an unchanged inflation figure means that there will be less of a chance that the Bank of England will need to change its interest rates when it next meets on August 2 at the Monetary Policy Committee.
Having expected a change in interest rates on the horizon, Senior Economist Ben Brettell of Hargreaves Lansdown confirmed that investors had been “pricing in around an 80% chance the Bank would lift borrowing costs in August”. The inflation figures released by the ONS alongside relatively low wage increase figures will likely result in a fiscal policy rethink.
With no expected change in current oil trends, the UK should see no change in the current rise in general energy costs, as wholesalers face rising costs themselves. This is likely to affect consumers both at the petrol pumps and in their home energy usage.
This comes at a time of uncertainty in the oil market, as imminent Iranian economic sanctions and increasing US protectionism are set to influence oil supply levels.