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Currency and commodity market pincers squeeze motorists and fuel demand
Already cash-strapped motorists have been squeezed further by a combination of stock market speculators pumping up the price of petrol and financial gambling pushing down the value of the pound. After surging 5p a litre over a month, the average petrol price on UK forecourts has shot up a further penny in the past five days.
February’s AA Fuel Price Report shows that the average cost of petrol in the UK is now 138.32p a litre, up 5.61p on a month ago (132.71). Diesel now averages 145.10p a litre across the UK, an increase of 4.78p compared to mid January (140.32).
The 6.24p-a-litre hike in petrol prices since they started to rise in early January (132.08) has added £3.12 to the cost of a typical 50-litre refill. Filling up the 70-litre tank of a Ford Mondeo now costs £4.37 more than six weeks ago. A two-car family’s monthly petrol cost has risen £13.25 with the current price surge.
Drivers have been caught between the pincers of a pound weakened against the dollar and soaring wholesale prices, both due to stock market speculation. In the UK, Europe and US, drivers have cut back: this week’s ONS Retail Sales report for January highlighted a drop in fuel-related sales, French diesel consumption in January fell 2.1% and petrol declined 7.7%, and US gasoline demand dropped 1.6% in just one week. Economists in the USA calculate that “every penny increase at the pump shaves $1.2 billion from non-energy consumer spending”.
Since the start of the year, the wholesale price of petrol has risen from around $990 a tonne to more than $1110 a tonne. At $1.62 dollars to the pound, the sterling cost of a tonne of petrol would have risen from £611 to £685, equivalent to a rise of 5.6p a litre. However, at $1.55 dollars to the pound, a tonne of petrol now costs £716, boosting the equivalent rise to 7.9p a litre. With VAT, that increase translates into a potential 9.5p-a-litre increase at the pump.
Up until the end of last week, given that changes in the pump price are usually two weeks behind wholesale’s, the average UK driver was being partially shielded from the full force of the wholesale price hike. However, the latest 1p rise suggests the pace of increase has picked up. The previous two petrol price spikes in March and October ended with sharp collapses in the wholesale price as refiners seized on better margins and ramped up petrol production. That offers the best hope of relief for drivers and businesses.
Regionally, at present, Yorkshire and Humberside and the North are the cheapest for petrol at 137.6p a litre. Yet, London and Scotland, both averaging 137.8p, are hard on their heels. Northern Ireland is most expensive at 138.7p.
Yorkshire and Humberside remains the cheapest region for diesel, averaging 144.2p a litre, while East Anglia gains the company of Northern Ireland and the South East as the most expensive areas for diesel at 145.2p.
By brand, although the supermarkets remain on average the cheapest outlets for petrol, albeit with a 2p-a-litre difference between the cheapest and dearest, the proximity of Shell’s price reflects the significant number of towns where it has undercut the more expensive supermarkets. These tend to be the smaller market towns without an Asda. A fortnight ago, Winchester drivers joined those in Newbury, Aylesbury and elsewhere complaining about the 5p-a-litre or £2.50-a-tank surcharge on petrol compared to neighbouring towns.
We’re no longer talking of the motorist as a cash cow for tax and speculator greed, but a horse slowly but surely being flogged to death
Edmund King, AA president
“This latest surge in fuel prices and its impact on spending indicates that UK drivers and families can’t take any more. We’re no longer talking of the motorist as a cash cow for tax and speculator greed, but a horse slowly but surely being flogged to death,” says Edmund King, the AA’s president.
“This is the third 10p-a-litre wholesale price surge in 11 months, given extra vigour by currency speculators betting against the pound. Last week, supported by France and Germany, the EU tabled its financial transaction tax proposal, which includes a 0.01% levy on derivatives.
“Given the lashing motoring families and UK businesses are taking from speculator-driven fuel prices, we hope the Chancellor spells out clearly in the forthcoming Budget that he can feel the pressure rocketing fuel price inflation places on families and business - and that he will cancel the September rise if that strain is too great. After all, with high prices comes more VAT, and many drivers would like him to look at where the real damage to fuel consumption and the tax-take is being done.”