The sharp fall in the oil price in recent weeks is as welcome as a tax cut. We see the results at the petrol pumps, with petrol and diesel for our cars, vans and lorries down in price.
Politicians have made clear they want to see further falls. They may have their way. It always takes a bit of time for the fall in the oil price to feed through to a fall in the retail price of oil based products. There can be a good reason – the oil companies have to work through their stocks of oil bought at dearer prices before they get the benefits of cheaper oil which they buy now. The price of petrol of course never falls at anything like the percentage of underlying oil, because so much of the price at the pumps is government imposed duty. Total tax is almost two thirds of the price we pay.
A fall of 10-12 p a litre is still good news. It’s a gain of more than £100 a year for someone travelling for 8000-10000 miles year in a typical vehicle with reasonable fuel economy. That’s £100 available to spend on something else, which can help provide a further economic boost. It’s also part of the process of getting people used to much lower inflation than the UK has experienced for many years. Surveys show people still expect inflation to be above the Bank’s 2% target and are suspicious of claims it is lower. At the moment it is visibly lower, with food price competition also helping the family budget.