Boris Johnson’s bid to reset his struggling premiership has received a double whammy after petrol prices saw their biggest daily rise in 17 years and a leading international think tank said the UK economy would slow to a halt next year.
Fears that Britain is heading for a prolonged period of 1970s-style stagflation have intensified amid new evidence of the detrimental impact of war in Ukraine on the cost of living and growth.
Dashing the government’s hopes of a sustained recovery from the Covid pandemic, the Organization for Economic Co-operation and Development (OECD) has singled out the cost of living crisis as a cause of Britain’s fall in the international growth ranking. He said the UK would be the weakest economy in the G7 group of major industrial nations next year.
In the latest twist of inflation, motorists face the looming threat of the cost of filling the average family saloon hitting £100 for the first time, after the cost of a liter of petrol rose by 2, 23p Tuesday at over 180p.
Data firm Experian Catalist said a similar rise on Wednesday would see the £100 barrier broken. Some forecourts are already selling petrol above £2 a litre, including a BP garage on the A1 near Sunderland which charged 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 wider economy, as companies typically use the fuel to fill vans and trucks. Prior to the invasion of Russia in late February, petrol and diesel hovered around the 150p mark.
As ministers wary of a backlash from drivers, Downing Street has told petrol retailers they could face an investigation by the competition watchdog if there is had evidence that the 5p per liter cut in fuel duty announced by Rishi Sunak in his March mini-budget was not passed on.
Inflation has already hit a 40-year high of 9% and the OECD has said it will continue to rise to peak at over 10% later in the year.
Despite demands from some Tory MPs, Sunak has no immediate plans to cut taxes and intends to wait for the budget in the fall before offering another package of support. 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 zero growth in 2023, according to the Paris-based OECD, with inflation expected to average 8.8% this year and fall to 7.4% in 2023.
The forecast, contained in the OECD’s half-yearly economic outlook, represents a sharp decline from growth estimated at 4.7% this year and 2.1% next year made six months ago.
Laurence Boone, chief economist at the think tank, said the UK was being hit by a combination of factors including higher interest rates, higher taxes, reduced trade and more expensive energy.
The OECD has said the UK is set to go from the second fastest growing economy in the group of G7 industrial nations after Canada this year to the slowest growing in 2023. Japan, Germany, Italy, France and the United States are the other members. of the group.
A UK Treasury spokesman said: ‘Thanks to the support we have provided during the pandemic, the UK had the fastest growth in the G7 last year, and our unemployment rate is the lowest since. almost 50 years. But we recognize that many people will be affected by these predictions.
“Although we cannot entirely insulate the UK from global pressures, our economy is in a strong position to face these challenges. We have a growth plan and we support people with the cost of living.
Rising petrol and diesel prices have been blamed on rising demand for fuel around the world, including in China and the United States, as Covid restrictions ease. A squeeze in refinery capacity has also kept pump prices high, while oil has fallen from peaks seen at the start of the war in Ukraine.
Business Secretary Kwasi Kwarteng wrote to forecourt retailers last month to ‘remind them of their responsibilities’ to pass the tax cuts on to motorists. He said it was “unacceptable that different locations, even within the same retail chain, have vastly different prices.”
He asked the Competition and Markets Authority to examine the issue. The Prime Minister’s spokesperson said: ‘The CMA has said that if it finds evidence that the reduction is not being passed on, 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 study all possible options. Transparency can have an important role to play.