The impact of falling oil prices

Despite falling oil prices, consumers are yet to see a significant reduction in the cost of petrol at the pump.

17th December 2014, words by Steven Lang

 

Sticky pricing

■ Since the end of last year, oil prices have been falling steadily. With the price now 41% below the 2013 year end. The question is how will this impact the British consumer and corporates?

■ UK businesses, from a recent Lloyds Bank survey, found that cost pressures are lower due to flat output prices as transport and commodity costs have fallen. The overall reduction in households' fuel bills is estimated to be £14 billion (or 0.8 per cent of GDP). This will have a positive impact on consumers' spending powers and economic growth. It's a step too far to suggest that occupier demand will increase, but any cost savings bodes well for corporate willingness to take floorspace and absorb the anticipated rental increases.

■ For consumers, we are yet to see the impact of oil price falls to feed through directly to the cost of petrol at the pump. Compared to the 41% fall in oil prices, over the same period, petrol prices are only 8% lower - an economist would suggest 'stickiness'. Oil companies are looking to cut their non-operational cost base and prices on the forecourt will not be a priority unless price competition increases. Therefore, more favourable petrol prices, back to the £1 per litre level, will continue to elude drivers in the short-term, a level not seen since 2009.

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Graph 2

■ Overall, cost pressures are receding in the UK. Inflation has fallen from the Bank of England's target of 2%, at the end of last year, to 1.3% in October 2014. GDP is now poised to exceed the consensus next year and base rate rises now pushed back to end-2015.

 

 
 

Key Contacts

Steven Lang

Steven Lang

Director
Commercial Research

Savills Margaret Street

+44 (0) 20 7409 8738

 

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