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Oil prices and their economic impact

While different countries have their own distinctive relationship with oil, one thing is apparent: few nations are unaffected by significant changes in the price of this commodity.

This is certainly the case in the UK, which contains oil companies, lubricant-based industries, and consumers. The economic interests of these groups are not always the same, but generalisations about the influence of oil prices are still possible. As such, read on to see how the going rate for barrels affects Britain:

Low oil prices tend to boost growth

While lower prices for oil can reduce the amount of money that the likes of Shell has to invest, most economists see the wider benefit of how cheap barrels support growth. For example, companies and households can both gain significantly from cheaper products and utilities. Trevor Williams, an economist at Lloyd Bank Commercial, expressed this phenomenon in the simplest way possible, by maintaining that cheap oil is similar to a reduction in tax.

When the public have a tax cut, they have more of their own money to spend. This enables them to contribute to a range of sectors within the British economy. However, they can also take advantage of cheap oil prices to go abroad for less, meaning that the UK’s airlines and travel companies are also getting a boost from cheaper fuel and lubricant expenses.

Low oil prices and the environment

Decreased costs per barrel can also have an influence on the environment, because people are somewhat less likely to use something responsibly when it is available at lower prices.

However, the UK has been investing in the encouragement of renewable energy, along with increased efficiency, in recent years. Coupled with the development of many green products, including eco-friendly machinery, this means that low oil rates do not necessarily mean environmental degradation at all.

High oil prices and their consequences

A spike in the going rate can have a detrimental impact on economic development, because this may feed into inflation, which could then have a negative influence on economic stability. Governments may struggle to keep it under control if workers try to insist on their wages keeping up with rising prices. In certain contexts, high inflation can combine with low economic growth to produce stagflation. This can be awkward for policymakers to escape from, because interest rate adjustments can spark public discontent.

However, Britain’s oil industry has proven resilient, so while we have seen that fluctuating prices have the ability to influence the UK, it is well positioned to manage it.

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