Will petrol and diesel prices go up now?

For British households finally emerging from years of punishing inflation, the timing could scarcely be worse. Oil prices have surged 10% following coordinated US and Israeli strikes on Iranian military targets, with Tehran responding by issuing warnings to vessels about navigating the Strait of Hormuz. What makes this moment particularly precarious for UK consumers is not just the spike itself, but where it lands in the economic cycle.

A reversal just as relief arrived

British households have spent the past several months experiencing something resembling normalcy after years of economic turbulence. Petrol prices had declined to 133.2p per litre, down from earlier peaks. Diesel stood at 142.7p. Inflation had cooled sufficiently for the Bank of England to cut interest rates six consecutive times since August 2024, bringing them down to 3.75% from more elevated levels.

Another cut had been widely anticipated later this month. That calculation has become considerably more complicated.

According to the AA, fuel prices could return to early-2025 levels within weeks if crude oil prices remain elevated. Simon Williams from the RAC provided more granular scenarios: oil at $80 per barrel would push average petrol prices to 136p per litre. At $90, drivers would face costs exceeding 140p. A sustained rise to $100 per barrel would mean prices approaching 150p.

The distinction between possibility and probability matters here. These projections assume sustained elevation, not merely a brief shock.

Yet even temporary spikes create downstream effects that take time to unwind.

Beyond the petrol pump

Transport costs ripple through every sector of the economy. Food distribution, manufacturing logistics, service delivery—all carry fuel as a baseline input cost. When diesel becomes more expensive, those costs eventually migrate onto supermarket shelves.

Benjamin Goodwin, a partner at banking advisory firm PRISM Strategic Intelligence, pointed to a less obvious transmission mechanism: crude oil derivatives used in fertiliser production. Agricultural input costs could rise, feeding through to food prices with a longer delay than simple transport inflation.

What's interesting here is the asymmetry of price movements. Energy costs tend to rise swiftly when wholesale prices spike, yet fall more gradually when markets calm. British consumers learned this pattern well during the post-Ukraine invasion energy crisis.

The domestic energy price cap provides some insulation, but only temporarily. Current household gas and electricity bills reflect rates already set for the April-to-June quarter. Any sustained increase in wholesale costs would appear in the subsequent price cap covering July onwards—precisely when households expected further relief.

The Bank of England's dilemma

Subitha Subramaniam, chief economist at Sarasin & Partners, outlined the cascade effect facing monetary policymakers: elevated crude prices don't remain isolated. They bleed into food costs, agricultural commodities, industrial inputs. Inflation, which had been retreating steadily from post-2021 peaks, could reverse course.

The Bank of England's Monetary Policy Committee meets in a fortnight. Under normal circumstances, the widely expected rate cut would proceed. These are not normal circumstances.

Two weeks provides insufficient time to assess whether current oil price movements represent a temporary shock or the beginning of sustained elevation.

For mortgage holders who've been anticipating further rate reductions to ease their monthly payments, this represents another uncertainty in financial planning. For businesses that had begun expanding on the assumption of looser monetary policy, the calculus just shifted.

Contingent outcomes

The crucial qualifier remains conflict duration and severity. A brief flare-up followed by de-escalation would allow markets to normalise relatively quickly. Prolonged disruption to Strait of Hormuz shipping, actual supply interruptions rather than merely threatened ones, or further military escalation would produce vastly different economic outcomes.

British consumers have limited agency over geopolitical developments in the Persian Gulf. What they can observe is this: the breathing space they've gained over recent months—lower inflation, falling fuel prices, declining interest rates—rests on more fragile foundations than many had assumed. Global energy markets remain tightly coupled to Middle Eastern stability, and that stability continues to prove elusive.

The next fortnight will clarify whether this week's oil price surge represents a temporary spike or the beginning of a more sustained increase. That distinction will determine whether British households continue their economic recovery or face another reversal in cost-of-living conditions just as relief seemed within reach.