With utility bills likely to rise another 30-40%, oil still has power to shock

Oil prices again hit new records yesterday, making the once implausible Goldman Sachs forecast of a “super-cycle” that would drive them to $200 a barrel or more seem alarmingly credible.

They also provide a major headache for the Bank of England’s Monetary Policy Committee, which meets this week for its monthly deliberations on interest rates. The fast slowing economy would argue for another cut, as indeed in some respects would the deflationary effect of higher energy prices.

More money spent on petrol and utility bills means less for other things at a time when credit is no longer available to mitigate the consequent squeeze on disposable incomes. Unfortunately, higher oil prices also add to inflation. Whereas the current inflationary spike was expected to ease by the second half of this year, this now looks much less certain.

Independent