Boris Johnson’s attempt to roll back his ailing position as Prime Minister has received a double whammy after petrol prices posted their biggest daily rise in 17 years and a leading international think tank said the UK economy would grind to a halt next year.
Fears that the UK was headed for prolonged 1970s-style stagflation grew amid new evidence of the damaging impact of the war in Ukraine on the cost of living and growth.
The Organization for Economic Co-operation and Development (OECD) dashed government hopes for a sustainable recovery from the Covid pandemic, citing the cost-of-living crisis as the cause of Britain’s descent in international growth rankings. Britain will be the weakest economy in the G7 group of leading industrialized nations next year.
In the latest turn in inflation, motorists face imminent danger as the cost of filling up an average family saloon reaches £100 for the first time after the cost of a liter of petrol rose by 2.23p to more than 180p on Tuesday are.
Data company Experian Catalist said a similar surge on Wednesday would see the £100 barrier breached. Some petrol stations are already selling petrol in excess of £2 a liter, including a BP petrol station on the A1 near Sunderland which was charging 202.9p.
Average diesel prices are also at a record high, hitting 186.6p on Tuesday, up 1.4p from Monday. Higher diesel prices have a significant impact on the overall economy, as businesses typically use the fuel to fill vans and trucks. Before the Russian invasion at the end of February, petrol and diesel were hovering around the 150 pence mark.
As ministers fear a backlash from drivers, Downing Street told petrol dealers they could face an investigation by the Competition Authority if there was evidence that the fuel tax cut announced by Rishi Sunak in his March mini-budget was about 5 pence per liter had not been passed on.
Inflation has already hit a 40-year high of 9% and the OECD said it would rise further to over 10% later in the year.
Despite calls from some Conservative MPs, Sunak has no immediate plans for tax cuts and intends to wait until the autumn budget before presenting another support package. The Chancellor and Prime Minister will outline plans in the coming weeks to boost growth through measures such as improving skills and increasing UK investment in research and development.
The UK economy will grow by 3.6% in 2022 and there will be no growth in 2023, according to the Paris-based OECD, with inflation expected to be 8.8% this year and fall to 7.4% in 2023.
The predictions, included in the OECD’s semi-annual economic outlook, represent a significant downgrade from growth estimated six months ago of 4.7% this year and 2.1% next year.
Laurence Boone, the think tank’s chief economist, said Britain was being hit by a combination of factors including higher interest rates, higher taxes, less trade and more expensive energy.
The OECD said the UK is expected to go from being the second-fastest-growing economy in the G7 group of developed nations this year to being the slowest-growing in 2023, after Canada. Japan, Germany, Italy, France and the USA are the other members from the group.
A UK Treasury spokesman said: “Thanks to the support we’ve been providing during the pandemic, the UK has had its fastest growth in the G7 over the past year and our unemployment rate is the lowest in almost 50 years. However, we are aware that these forecasts will worry many people.
“While we cannot fully isolate the UK from global pressures, our economy is in a strong position to deal with these challenges. We have a growth plan and support people with the cost of living.”
The rise in petrol and diesel prices has been attributed to increased fuel demand around the world, including in China and the US as Covid restrictions are eased. A capacity squeeze at refineries has also kept pump prices high, while oil prices have fallen from the highs seen at the start of the war in Ukraine.
Business Secretary Kwasi Kwarteng wrote to petrol station dealers last month “to remind them of their responsibility” to pass on tax cuts to motorists. He said it was “unacceptable that different locations have wildly different prices, even within the same retail chain”.
He has asked the Competition and Markets Authority to look into the matter. The Prime Minister’s spokesman said: “The CMA has said if they find evidence that the cut is not being passed it would mean the competition is not working and they could launch a formal investigation. Of course we would wholeheartedly support them. We continue to examine all possible options. Transparency can play an important role.”
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