Pressure eases on motorists at last

October 30th, 2008

After months of pain at the pumps there is good news for Britain’s motorists. A price war has broken out after Asda, Sainsbury’s, Tesco and Morrisons all announced cheaper petrol.

Asda and Sainsbury’s said they would slash their petrol prices to 94.9p a litre. Tesco and Morrisons then said they would reduce their prices, while petrol company Total will also follow suit.

The supermarkets have already joined battle on the issue of forecourt prices on several occasions.

Sainsbury is supporting its announcement with a promotion offering an extra 5p off if customers spend £50 in store. This could mean customers spend less than 90p a litre on fuel for the first time since April 2007.

Meanwhile, Asda has said it will freeze prices in all of its 172 forecourts for 10 days, whatever the fluctuations in crude oil prices. A litre of its petrol will now cost 94.9p, while its diesel will be 107.9p.

However, some observers claim that supermarkets can afford to sell petrol at a loss to try and win customers into their stores, a luxury which independent fuel retailers cannot afford.

Several consumer groups welcomed the news, with AA president Edmund King saying the cuts had come at just the right time.

Supermarkets resumed their price war after the price of oil started heading downwards, putting pressure on them to react by cutting their own prices.

The price of oil has continued to slide, despite warnings by producers’ cartel Opec that it could cut production rates to stabilise prices. The RMI Petrol Retailers Association warned prices could rise in the near future, but said they would come down again.
(Apologies for the lack of posts over the last week, I have been having connection problems. Normal service has been resumed.

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The recession should dispel inflation

October 20th, 2008

In an announcement that will shock none but dismay many, the UK economy has ‘deteriorated dramatically’ in the past three months, and is already in a recession, according to the latest forecasts

The figures suggest that the UK will shrink by 1% over the next year, before recovering in 2010 and growing by 1%.

There is a plus side to this as inflation is now likely to fall, which should allow the monetary policy committee of the Bank of England to cut interest rates further.

Top economists combine these two factors and claim that with plunging interest rates, falling inflation, and a fundamentally strong economy, the recession will be ‘relatively short and shallow’.

The latest claims are not alone in thinking the UK has entered a recession, which is technically defined as two quarters of negative growth. A recent quarterly survey of 5,000 businesses by the British Chambers of Commerce also said the UK was in a recession.

As a result of the slowdown, widespread cuts in investment and employment are inevitable. While the largest job cuts so far have been in finance and housing, the sectors most closely linked to the recent turmoil, it is believed the effects will spread further.

Unemployment claims could hit 5% by the end of 2009, which is double the rate at the end of 2007.

The new report comes after recent data from the Office for National Statistics underlined the weakening labour market. The number of people out of work in the
UK rose sharply in the three months to August by 164,000 compared with the previous quarter, marking the biggest rise for 17 years.

Until September, accelerating inflation had been a major concern; latest figures show the annual CPI rate reached a 16-year high of 5.2% last month.

But prices have fallen recently, most notably for energy, and analysts expect September’s figure to mark a peak. However, real disposable incomes are set to remain flat in 2009, before rising in 2010.

The predictions continue that house prices will fall 14% by the end of this year, and drop a further 10% next year. Until the bottom of the market is reached and confidence returns the housing sector will be in suspended animation.

Last year consumers were able to handle the income squeeze by borrowing and dipping into their savings, but this year it is a very different story with credit harder to access and far more expensive.

There is essentially nothing new in these predictions, they follow the same pattern we have been hearing about for several months now and the banking crisis did not exactly bring any hope. What is new is that this report is based on more accurate figures and predicts over a shorter time frame.

This would suggest that we have moved beyond predictions and into descriptions of what will happen. Of course no description of the future will ever be 100% accurate, but this is going to be pretty close.

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Baring collusion, domestic energy prices will fall

October 17th, 2008

The fervent hopes of homeowners that their energy bills may fall are in the balance after the regulatory watchdog was called in to monitor the activities of utility companies.

The fear of a global recession has pushed down the price of crude. A barrel of oil has fallen from a high of around $147 in July to around $70. This has led to the price of petrol for motorists dipping below £1 a litre at some retailers for the first time since December last year.

The pressure group Consumer Focus is a new merger of Energywatch and the National Consumer Council. They want to see domestic energy bills, which are linked to the price of oil, also dropping as a result. However, domestic bills show no sign of falling.

The Energy Retail Association says bills will not fall immediately as gas wholesale prices remain high.

‘Oil prices have been falling since July, yet consumers have seen unprecedented rises in their gas and electricity costs. Consumers must now be wondering why they are left waiting,’ said a spokesman for Consumer Focus.

‘We want immediate action from energy companies to reduce their prices in line with falling oil prices. This will be good not just for consumers, but for the whole economy.’

Consumer Focus said that gas prices have risen by 51% since the start of the year, and electricity bills up by 28% which puts the average annual household energy bill at £1,308.

However, analysts say that although the two are linked, gas prices did not rocket as much as oil prices earlier in the year and so now did not have so far to fall.

Also, gas and electricity supplies are bought in advance for the winter, so there will be a lag on any changes in tariffs.

Politicians have also joined in the debate. The Energy Minister has stated that he wants to see the oil price fall fed through into gas and electricity prices but gave no indication of any action he would be willing to take to see this happen.

The pressure on consumers will ease, although it will take longer than for motorists. The market mechanisms, closely watched by regulators, will ensure that prices fall for consumers along with the wholesale prices.

Competition is the key for consumers in this situation. As the wholesale price falls companies will get the chance to undercut their rivals in order to increase their market share. Consumers can then wait until their provider responds or switch.

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