The plummeting price of oil is pushing petrol prices down, which will have a knock-on effect on the cost of living in the UK, leading to less pressure on the Bank of England to raise interest rates.
Oil prices dropped more than $2 dollars a barrel yesterday (13 October), reaching their lowest level since 2010 and taking prices to 30 per cent below their June peak of $115.
This has led to savings at the pumps in the UK, with the average price of unleaded petrol being 127p, 11p cheaper than in September 2013, and prices are expected to fall further still in the supermarkets this week.
Many economists had been expecting a rise in interest rates very early next year, with some even predicting a pre-Christmas hike, but it now looks as though the rate could stay where it is, at its record low of 0.5 per cent, until nearer the middle of next year.
With the Consumer Price Index (CPI) rate of inflation for September being confirmed today as 1.2 per cent, an even greater fall than expected and its lowest level in five years, the pressure is off the Bank’s Monetary Policy Committee (MPC) even more.
The Office for National Statistics (ONS) showed that food prices are down by 1.5 per cent over the last year, while motor fuel prices have dropped by 6 per cent, which have historically been amongst the main causes of inflation.
The fall in the CPI level is even further below the Bank’s target rate of 2 per cent and has stayed well below that figure for the past nine months. Meanwhile, the Retail Prices Index measure of inflation fell to 2.3 per cent in September from 2.4 per cent in August.