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Rising Petrol Prices 'Threaten Economy'

(c) Sky News 2012

The AA has warned that rising fuel prices risk damaging the Bank of England's expectation that inflation will fall back to target by the end of the year.

The motoring organisation has measured an average 2.5% increase in pump costs over the past month alone.

It says road fuel prices may return to the path that led to six weeks of record fuel prices earlier this year.

In the past month, average petrol prices have risen 3.34p a litre, from 132.18p a litre in mid July to 135.52 now.

Diesel is up 3.19p a litre, averaging 140.45p a litre now compared to 137.26p in mid July.

Following July’s surprise increase in inflation , the new surge in pump prices will stoke the rise further, the AA warned.

The Bank of England had hailed falling inflation as an end to the spending squeeze on the consumer, as price and wage rises became more closely matched.

The AA found that compared to this summer’s low-point for UK fuel prices on July 1, UK drivers are now spending £4.85m a day more on fuel.

That is despite tighter supermarket competition and the report suggests drivers are being partially insulated from higher wholesale costs as a result.

Pump prices for the two fuels are moving largely in tandem. it said, pointing to the main influence of oil - up from $90 a barrel in late June to more than $114 now.

It suggested market speculators were largely behind the rising costs as there was no market demand to support the increased oil costs.

The AA's head of public affairs, Paul Watters, said: "Once upon a time, petrol prices would rise heading into the summer, due to higher demand for the motoring season, and then fall away late summer onwards.

"The cost of diesel would then pick up heading into winter as demand for heating oil came into play. These days, demand appears to be increasingly irrelevant - it doesn’t matter how much drivers cut back, the commodity markets always seem to find a reason for pumping up oil and wholesale prices."

He continued: “France introduced the first stage of its transaction tax on the financial sector a fortnight ago, with other European countries considering a similar move. The French government hopes that this will curb speculation. UK drivers may have some sympathy."

The Government said that though no decisions have been made to release oil stocks, it stands ready to step in to help drive oil prices down if necessary.

In a statement, the Department of Energy (NYSEArca: JJE - news) and Climate Change said: "Clearly current oil prices are a concern for individuals and business.

"The market remains very tight. This has a knock-on impact on the oil price and therefore the global economic recovery.

"As noted at the G8 earlier this year, we and our international partners continue to monitor the oil market and stand ready to call upon the International Energy Agency to take appropriate action as required."

As governments step up efforts to steady rising oil prices, France and the US are also discussing options according to a source in the French presidential office.