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Loan rates could come down on oil price rise

29 June 2005

The high and fluctuating cost of oil looks to set to hasten the onset of falling interest rates.

With oil trading around $60 a barrel, consumers will be hit by soaring petrol prices, fast-rising gas bills and more expensive summer holidays.

And it looks unlikely people will start to spend more on the high streets as the Bank of England is hoping.

The average family already forks out almost £100 a month to keep their car running - that is 8.3 per cent higher than at the start of the year.

And now pump prices are likely to climb even higher.

As such, economists warn people will cut back further on how much they spend on the high street.

"It is going to constrain consumption, it already has constrained consumption," said George Buckley, an economist at Deutsche Bank, told Reuters.

"The Bank is likely to be more concerned about the negative impact on demand than the upward effect on inflation."

Influenced by such reduced activity the Bank of England's Monetary Policy Committee is likely to unfreeze the 4.75 per cent rate and start to lower it.

However, Bank of England governor Mervyn King said earlier this month he thought the media had overplayed the dismal retail sector situation.

He added that the slowdown had not yet affected services like holidays.