U.K. Chancellor of the Exchequer George Osborne
refused to bow to pressure Wednesday to mitigate high fuel prices by canceling
an increase in the tax imposed on gasoline and diesel planned for later in the
year.
Road fuel prices in the
U.K.
have become a hot political issue after they rose beyond their previous
all-time highs earlier this month, according to data from the Automobile
Association. However, the economic impact of the price increases appears so far
to be less severe than the last time prices were so high in 2008.
Motorists' groups have been pressuring the government to cancel the tax
increase to ease the pressure on consumers. Presenting his annual budget to
Parliament, Osborne said there will be no changes to the current system for
setting fuel duty, meaning that a 3 pence increase in road fuel duty will go
ahead in August.
The U.K. already has the ninth highest petrol price in Europe and the second
highest diesel price, according to the AA, which provides breakdown recovery
services and car insurance in the U.K.
International oil prices have risen almost 20% since December due to an
escalation in tensions between Iran and the West over Iran's nuclear program
and the imposition of sanctions, expected to curtail Iranian oil exports by the
middle of this year.
The threat that the high cost of oil will derail economic recovery has become a
concern to both consumers and producers. In an unusual market intervention
Tuesday,
Saudi Arabia
,
the world's largest crude exporter, moved to ease consumers' fears that oil
supplies were inadequate.
The Saudi comments made a small dent in oil prices. Brent crude closed down
$1.59 a barrel at $124.12 Tuesday. International oil prices remain below the
all-time high of $147 a barrel reached in July 2008, but in sterling and euro
terms benchmark Brent crude exceeded its 2008 high late in February.
Despite widespread fears about the economic impact of high oil prices,
U.K.
consumers have only modestly changed their habits. Gasoline demand in December
was down 3% on the year to 320,000 barrels a day, according to data from the
International Energy Agency, which represents the interests of major energy
consuming rich countries. Diesel demand in December was actually 12.2% higher
at 460,000 barrels a day.
The last time oil prices hit record highs, in the summer of 2008, fuel demand
fell sharply. In July 2008,
U.K.
gasoline demand was down 7.6% and diesel consumption down 10.3% on the previous
year.
Analysts say the current impact may be more muted because the increase in
prices has been more gradual than in 2008, so consumers have more time to adapt
their behavior.