Oil Price Shock Dims Hopes for Cost of Living Relief

Andy Burnham's cost of living plan is facing significant challenges due to rising oil prices. Brent crude prices have surged more than 6% to a two-month high, surpassing $100 a barrel for the first time since May. This increase threatens to maintain pressure on household finances despite the Prime Minister's efforts to ease the burden.

The average price of diesel has gone up by almost 8p to 172.14p per liter in the last fortnight, while petrol has risen by 5p in two and a half weeks to 155.57p. Analysts at Cornwall Insight warn that the Prime Minister's 5% VAT cut on electricity bills will be cancelled out by rising oil and gas prices.

Higher oil prices are also constricting the Prime Minister's ability to offer support, pushing up borrowing costs and making it difficult for him to make meaningful dent in cost of living challenges. Bond markets across the world have come under pressure due to higher energy prices, with the German 10-year yield hitting its highest level since 2011.

Investors are putting pressure on UK borrowing costs, with the Prime Minister's string of policy announcements adding to concerns about how he plans to pay for his plans. Experts warn that targeted subsidies will continue to put upward pressure on gilt yields and thus put pressure on the overall budget.