UK Consumer Faces Triple Threat as Energy Costs Soar

The UK consumer has shown resilience in the face of rising energy costs caused by the ongoing conflict in the Middle East. However, the outlook is becoming increasingly challenging. Oil prices have a direct impact on inflation through fuel costs and utility bills.

Shocks to oil prices result in immediate effects on fuel inflation, which contributes significantly to headline CPI. The average price of petrol at the pump has risen by nearly 30% since February, contributing 65 basis points (0.65 percentage points) to headline CPI.

The impact of natural gas prices takes longer to materialize as it is factored into the energy regulator's quarterly price cap. The next cap reset will result in a 4% increase for the October-December period. A potential 16% jump in January would translate to a 50 basis point contribution to headline inflation.

Rising oil prices also affect shipping and transport costs, while gas is a key input in fertiliser production. Uncertainty over the impact of El Niño on global agricultural output adds further pressure to food prices.