Ongoing global economic uncertainty coupled with oversupply from oil producing nations has led to much lower oil prices and the cost of fuel in the UK fell accordingly, reaching low prices not seen for seven years.
At the start of 2016, the price of a barrel of crude dipped below $30 – its lowest level for 12 years and less than half of what it was just six months earlier – and pump prices in Britain followed3.
RAC Fuel Watch data shows that the average price of a litre of unleaded in January 2016 was just over 102p while diesel was down to 101p – and many forecourts were selling both for less than £1 a litre. By way of comparison, in June and July 2015, petrol averaged more than 115p a litre and diesel more than 120p4.
It is hardly surprising therefore that the price of fuel has become far less of a concern for UK road users this year: just 7% of those questioned say the price of filling up is their top motoring concern, down from 10% in 2015.
Less than a quarter – 24% – named expenditure on fuel as one of their four most pressing concerns in 2016, down slightly from the 26% 12 months ago.
By way of contrast, the equivalent figures for 2014 and 2013 – at a time when fuel was significantly more expensive – were 47% and 63% respectively.
In addition to cheaper petrol and diesel prices, increased economic prosperity has no doubt played a part in reducing concerns about vehicle running costs. The UK’s GDP grew by 2.2% over the course of 2015, and by a further 0.4% in the first three months of this year5.
At the same time, wage growth has remained positive: in April 2016, the Office for National Statistics reported an average weekly earnings growth rate of 2%, well ahead of inflation.
Following June’s EU referendum, the outlook for both the UK economy and fuel prices has become less clear. A recovery in the oil price in the spring of 2016 means that forecourt costs have started to creep back up again. But with OPEC – the Organisation of the Petroleum Exporting Countries – seemingly committed to exerting downward pressure on oil prices in order to retain market share through a policy of excess supply, wholesale prices – in dollar terms at least – are expected to remain relatively low.
For British motorists, however, the weaker value of sterling following the EU referendum could feed through into higher pump prices in the coming months.
That said, the process of renegotiating trade deals with our European partners and of actually leaving the EU is likely to take many months and involves a high degree of uncertainty making it extremely difficult to speculate about future economic conditions.
In the 2015 Report on Motoring, the RAC called for greater transparency over how retailers set prices for petrol and diesel. This was due in part to the fact that diesel vehicle owners had failed to see any benefit from the diesel wholesale price falling below that of petrol in the second quarter of 2015: during this period, average diesel pump prices remained stubbornly higher than petrol, in the RAC’s view, for no good reason.