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The price of diesel is at a 5-year low: what does this mean for the UK’s economy?

A surprising piece of recent news was a drop in the cost of diesel fuel. New research shows that this has hit its lowest price for five years and is currently a less costly fuel option than petrol – the first time in nearly a decade and a half that this has been the case. Given how reliant most of us are on cars, fuel is a major expense for families, so any reduction in prices stands to offer real benefits for them – and through that, for the UK economy as a whole.

After all, thanks to independent providers and supermarkets selling diesel fuel at cheaper rates, families will have a bit more disposable income that can be spent elsewhere – helping to stimulate economic growth. The car industry is one of many that may benefit from this, as lower fuel costs could potentially provide people with options for upgrading their family cars, leading them to check out the deals available at online sites like Jennings Motor Group.

EY Item Club’s chief economic adviser, Peter Spencer, was quoted as saying:

“The UK consumer has been lashed by rising fuel and food prices for so long, but is now the major beneficiary as these pull back. Individuals can look forward to a substantial increase in real earnings.”

Ben Schumin

Indeed, the drop in the price diesel fuel has seen the National Institute of Economic and Social Research, a Government think-tank, re-examine its view of the country’s economic prospects. It now forecasts a rise of 2.9 percent in GDP, rather than the 2.5 percent it predicted towards the end of last year. The primary reason for this is fuel price decrease, which is giving consumers greater spending power, and is also enhancing the balance of trade for the UK.

The fall in diesel and oil prices is also having wider economic effects, helping to keep inflation levels at 0 percent – which is where they have been since early in the year. Indeed, with these rates having fallen below zero to -0.1 percent during the spring, there is speculation that the fuel price drop could see this happen again before the end of 2015.

This all promises a possible rise in the standard of living, but it is not all good news, as the drop in fuel prices could also see development work in the North Sea grind to a standstill – with job losses a consequence. Furthermore, the price drop could also lead to the big fuel manufacturers reducing their level of investment in their UK assets – which would have a negative effect on the country’s economy as a whole.

Overall, the signs at the moment suggest that the diesel price drop is good for the UK economy, but we should be cautious about the possible long-term effects.

 

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