Petrol prices predicted to fall before Christmas - but is Chancellor Rishi Sunak set to raise fuel duty by 3p-a-litre?

  • Last month unleaded prices fell a fraction on average to 114.61p per litre
  • Diesel dropped from 118.43p to 118.10p-a-litre, says RAC's Fuel Watch division
  • It said that owners of diesel cars are being unfairly stung by retailers refusing to lower prices in-line with wholesale price declines
  • With additional Covid-19 restriction measures and potential for more regional lockdowns, RAC said there is a greater chance of fuel prices falling than rising
  • Chancellor Rishi Sunak has hinted fuel duty could rise by 3p next year 

Three months of consecutive petrol price hikes have come to an end, with motorists set to benefit from stabling pump prices in October, according to a market report.

In September, unleaded prices fell a fraction - 0.17p - on average to 114.61p per litre, while diesel dropped from 118.43p to 118.10p-a-litre, says RAC's Fuel Watch division. 

With the increasing likelihood of ramped-up restriction measures and regional lockdowns being enforced by the government to curtail the spread of the coronavirus, the motoring group said limited demand could see pump prices fall between now and Christmas.

However, there could be a sting in the tail, with Chancellor Rishi Sunak indicating that a decade long freeze on fuel duty could soon be thawed as he faces pressure to recoup some of the costs coronavirus measures have cost.  

Are fuel prices set to fall? Three months of rising pump prices ended in September, and the RAC says they are more likely to fall in coming weeks

Are fuel prices set to fall? Three months of rising pump prices ended in September, and the RAC says they are more likely to fall in coming weeks

The average price of petrol sold in September by the big four supermarkets - Asda, Morrosons, Sainsbury's and Tesco - dropped to 109p-a-litre, while diesel was 114p.

However, fuel prices on motorways went in the other direction, with services hiking petrol by 2.57p per litre to 126.72p across all sites. Diesel also went up 1.83p to 131.14p.

Based on the UK-wide average price of petrol, it would have cost owners of an average family car with a 55-litre fuel tank £63 to fill up.

That's around £7 less than in January, but £5 more than when prices sank to their lowest level in May on the back of dwindling demand caused by the Covid-19 lockdown.

Yet despite the expectation of stabilising fuel prices this month, the RAC says some drivers are being stung with higher costs than they should be incurring. 

It claims owners of diesel vehicles should be paying 8p-a-litre less than they are at the moment as wholesale prices have been lower than petrol for six weeks, yet its average forecourt price is 3.5p more expensive than unleaded's.

Based on average prices, retailers are taking an 11p per litre margin on diesel, which should be around 5p lower, according to the RAC. 

RAC fuel spokesman Simon Williams explained: 'Since June when prices stopped falling as a result of the coronavirus movement restrictions being eased, the cost of fuel has been going up steadily. 

'While price rises are never good news, they have not gone back to the high levels seen at the beginning of the year.

'Despite this, diesel drivers should feel short-changed by the decision of retailers to keep prices artificially high. 

'This must surely be difficult for retailers to justify. We strongly urge them to lower their prices in an effort to restore drivers' trust.'

Northern Ireland has the cheapest petrol prices on average, while London is most expensive to fill-up with unleaded

Northern Ireland has the cheapest petrol prices on average, while London is most expensive to fill-up with unleaded

Northern Ireland is also the cheapest UK area for diesel. Owners of oil burners in South East England were hit with the highest charges for diesel last month

Northern Ireland is also the cheapest UK area for diesel. Owners of oil burners in South East England were hit with the highest charges for diesel last month

Northern Ireland remains the cheapest region in the UK, with average petrol prices 111.31p-a-litre and diesel at 114.25p. 

On the flip side, London is the most expensive location to full up with petrol, with average unleaded prices at 115.82p per litre. South East England has the highest average diesel pump price at 119.53p per litre. 

Mr Williams hinted that motorists are not likely to see any significant rises in fuel costs in the coming weeks - and said a price fall is looking more likely if demand is restricted by regional lockdowns between now and Christmas. 

'While it's always difficult to predict what's going to happen with fuel prices, imminent rises would now appear pretty unlikely,' he told This is Money. 

RAC spokesman, Simon Williams, said the risk of regional lockdowns could see demand for fuel shrink, which might push prices lower

RAC spokesman, Simon Williams, said the risk of regional lockdowns could see demand for fuel shrink, which might push prices lower

'With the summer travel peak behind us and with ever more coronavirus restrictions being introduced, the demand for fuel is likely to wane,' he added.

'The price of oil has already dropped back to below $40 for the first time in two weeks as the increasing number of Covid-19 cases dampened traders' demand forecasts. 

'This coupled with a higher than expected output of oil from oil producer group OPEC could lead to lower prices on the UK's forecourts in the coming weeks.'

Chancellor Rishi Sunak is reportedly considering increase fuel duty by 3p-a-litre next year

Chancellor Rishi Sunak is reportedly considering increase fuel duty by 3p-a-litre next year

Fuel duty freeze to end?  

While fuel prices in the short term look favourable for drivers, Rishi Sunak has hinted he could end the decade-long freeze on fuel duty next year.

In an interview with The Sun, he said he 'cares about the cost of living' and 'fuel is a big part of that', as pressure from the Treasury mounts on his shoulders to recoup some of the huge financial burden caused by the pandemic.

It suggest he will give the green light for the fuel tax to increase in-line with inflation by 3p, despite MPs pushing for a 5p rise.

The tax has been frozen at 57.95p on each litre a motorists fills up with since March 2011. 

With average petrol prices being 114.61p at the end of September, it means around two thirds of the price of fuel at the pump is tax, made up of fuel duty and VAT at 20 per cent.  

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