Soaring price of oil deepens cost of living crisis

Those earning £30K set for a £1,100 rise in costs, says interactive investor.

• Households already face additional costs from the rise in National Insurance contributions, a jump in the energy price cap as well as a bumper food shopping bill.
• interactive investor estimates that these costs, combined, would mean a worker earning £30,000 face an additional cost burden of £1,128 a year from April. The figure rises to £1,378 for those earning £50,000.

The war in Ukraine might be over a thousand miles away to the east, but it feels close to home emotionally - and it is having a tangible impact on our finances. The cost-of-living crisis has ratcheted up a gear following the increase in the price of fuel in the fallout of the war in Ukraine.

Figures published today by the Department for Business, Energy & Industrial Strategy revealed that the average price of diesel and petrol have risen by 5.2 and 3.7 pence per litre, respectively, on from the previous week (to Monday 7 March). Over the past year, the price of diesel has increased by 31.2 pence litre and 30 pence for petrol.

Filling a typical 55-litre fuel tank costs around £17 more than a year ago - £87.21 compared to £70.07 for diesel and £84.12 against £67.62 for petrol.

Commenting on the oil prices, Richard Hunter, Head of Markets, interactive investor, says: “Reverberations from the possibility of a ban on Russian oil sent the price of black gold higher once more, and up by 63% in 2022 alone. The implied effect on inflation tempered any possibility of the buying of growth stocks, with the Nasdaq taking another lurch lower by almost 4% - and down by 18% in the year to date – sending that index into bear market territory since its recent November high. The Dow Jones also suffered from an evaporation of appetite, now down by 9.7% in the year to date and in correction territory, joining the S&P500 which has lost 11.9% this year.

“The oil price has also eaten into the prices of airline, travel and leisure stocks as supply concerns dominated any previous thoughts of a gradual economic recovery. Investors remain on tenterhooks as the conflict continues to unfold, with the possibility of further sanctions having second order effects in some sectors.”

In its fourth Living Standards Outlook, published today, The Resolution Foundation predicts that household income will fall by £1,000 because of the Russia- Ukraine war.

Households already face additional costs from the rise in National Insurance contributions, a jump in the energy price cap as well as a bumper food shopping bill.

interactive investor estimates that these costs, combined, would mean a worker earning £30,000 face an additional cost burden of £1,128*. The figure rises to £1,378 for those earning £50,000.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The war in Ukraine might be over a thousand of miles away to the east, but it is having a tangible impact emotionally, politically, and on our finances.

“The fallout of the conflict has been acutely felt by motorists, who have seen the price of fuel hit fresh highs, adding further pressure on budgets. But it is not just motorists who are feeling the pinch. Consumers are also feeling the squeeze from rising prices as many companies that rely on the transport of goods, such as supermarkets, pass the additional costs.

“The price of bread, beer, pasta and even pet food could be on the rise as the conflict in Ukraine has sent the price of wheat soaring (as both Ukraine and Russia are top exporters of the commodity). And other goods will become more expensive as supply chains face even more stress – compounding shop price inflation which rose at its fastest rate in over a decade in February according to the British Retail Consortium.

“Many households are already expecting their monthly spend to increase from next month when the energy price cap and National Insurance contribution rise. The conflict has deepened the cost-of-living crisis and threatens to push low-income households to financial breaking point.

“With the Spring Statement only couple of weeks away, the UK government is under growing pressure to take some of the increasing financial pressures off households, but there are no easy answers, especially in an interconnected global world. It is also no secret that the government needs to find cash to pay for its colossal Covid support packages, but now might not be the best time.

“The rising cost of living means we are saving less to maintain current levels of spending. If you don’t use a budget to manage your spending, it’s difficult to know where you stand. Everyone has their own inflation number – it’s worth keeping a spreadsheet of your own spending habits so you can get a better idea of the goods and services that are eating most into your budget, and where you could cut back.”

Notes to editors

*Assumptions:

Energy – based on increase in the standard tariffs will see an average increase of £693 - from £1,277 to £1,971 per year.

NI – National insurance contribution increase by 1.25 percentage points from 6 April. Workers on £30,000 those on £50,000 will pay £255 and £505 more per year.

Food bill – based on Kantar estimates: Grocery prices in the four weeks to 23 January rose by 3.8%/ Taken over the course of a 12-month period, this 3.8% rise in prices could add an extra £180 to the average household’s annual grocery bill.