Market News

Petrol prices are expected to rise as escalating conflict in the Middle East has driven oil sharply higher, which along with tariff uncertainty, could impact consumer confidence, according to market research and data analytics company GfK.

Oil prices have surged over the past week as Iran and Israel have continued to attack each other with missile strikes. Brent crude futures (BZ=F) rose 1.2% on Thursday, to trade at $77.65 a barrel, their highest point since late January.

There are concerns that the conflict will lead to a disruption in oil supply, particularly to shipping through the Strait of Hormuz, which is just off the coast of Iran. The waterway is described as an "oil artery", with around a fifth of global supplies passing through this channel.

In a note on Monday, Tom Pugh, a partner at consultancy firm RSM UK, said that the primary way escalating Middle East tensions would impact UK businesses and the economy "is through higher oil and natural gas prices".

He said that when oil prices hit $75 a barrel on Friday, the day that Israel launched attacks against Iran's nuclear facilities, that represented a $10 per barrel (pb) increase over the previous week.

"The most immediate impact will be on prices at the pump," Pugh said. "A $10pb rise in oil prices will probably result in a 5p increase in pump prices over the next couple of months.

"As higher fuel prices make their way through the system, a rule of thumb is that a $10pb rise in the price of a barrel of oil eventually adds 0.1% to 0.2% to inflation."

UK inflation came in at 3.4% in May, according to data released by the Office for National Statistics (ONS) on Wednesday, which was in line with expectations.

That figure compared to a jump in inflation to 3.5% in April, driven by a wave of household bill increases. However, the ONS said an error in vehicle tax data meant that this figure had been overstated by 0.1%. It explained on Wednesday that in line with its revisions policy, the April headline figure had not been amended but that the corrected information had been used when producing the May index, instead.

James Smith, research director at think tank Resolution Foundation, said: "Rising oil prices following renewed conflict in the Middle East mean that struggling families will be facing further cost of living pressures in the coming months."

"With oil prices up more than 15% this month, family petrol and utility bills look set to rise in the coming months, adding to pressures on struggling families, particularly those on lower incomes."

May's inflation reading was also still ahead of the Bank of England's 2% inflation target, with the UK's central bank announcing on Thursday that it was keeping rates on hold at 4.25%.

These fresh challenges to easing UK inflationary pressures threaten to weigh further on consumer confidence.

While GfK's latest consumer confidence index, released on Friday, rose by two points in June, it remained firmly in negative territory at minus 18.

GfK said its index showed that confidence in the general economy over the coming year rose by five points, but still remained at minus 28, which is 17 points worse than last June.

Neil Bellamy, consumer insights director at GfK, said: “Consumers have been resolute in their views on their wallets, with June’s personal financial situation scores — past and future — unchanged from May.

“Yet confidence is still fragile because the dark shadow of inflation is a day-to-day challenge for so many of us.

“With petrol prices set to rise in the coming weeks following the escalation of the conflict in the Middle East, and with ongoing uncertainty as to the full impact of tariffs, there is still much that could negatively impact consumers."

He added: “With so much volatility, now is certainly not the time to hope for the proverbial 'light at the end of the tunnel'."