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Slump in pound hits drivers with higher petrol costs

Petrol Prices Slumping Pound Sterling
Petrol Prices Slumping Pound Sterling

Drivers are to miss out on a fall in petrol prices after a sharp drop in the value of the pound.

Oil prices have dropped back to the lowest level since January, but these savings are being “severely undermined” by the weakness of sterling, according to the AA.

The sell-off means that motorists are paying £5 more for a tank of petrol than they otherwise would, according to the AA.

Petrol is closely linked to the US dollar because the Brent Crude is priced in the currency, so any change in exchange rate is felt at the pumps.

On Friday, the price of oil fell to the lowest level since January over recession fears.

Brent dropped more than 5pc on Friday amid fears of a global recession. West Texas Intermediate, the US benchmark, was down 6pc.

Markets are increasingly concerned about the risk of a downturn, with the US Federal Reserve chairman Jerome Powell warning last week that there is “no painless way” to tackle inflation and raising fears of a fall in American house prices.

The AA calculated that the price of petrol at UK forecourts would be “at least” 9p per litre cheaper if the pound had maintained its mid-February value of 1.35 US dollars, instead of $1.14, which it was last week, a 37-year low.

The difference in pump prices has added around £4.95 to the cost of filling up a typical 55-litre family car, the AA said.

The pound dropped further on Friday, to $1.09, which will further hit the price of petrol on forecourts.

Luke Bosdet, from the AA, said: “The influence of the exchange rate is often overlooked when drivers compare oil price movements with those at the pump.

“At the moment, it is critical. Oil and fuel on commodity markets are traded in dollars, which makes the weaker pound very bad news for motorists.

“The price of oil is back to the level at the start of the Ukraine war but petrol is 15p a litre more expensive.

“Two-thirds of that higher cost is down to the weakness of the pound.”

Simon Williams, of the RAC, said that retailers are also holding onto more of the money they make from selling petrol, with the margin doubling since February to 18p.

He said: “Regardless of the drop in the exchange rate, drivers are currently paying much more at the pumps than they should be. As VAT is applied after retailers have added their margin we estimate petrol should be around 11p a litre cheaper if they were only making 9p a litre as they did back in February.”

After he unveiled his mini-Budget, Chancellor Kwasi Kwarteng said he would engage with calls to cut fuel duty.