Petrol prices could hit £1.20 within the coming weeks sparking fears of further increases in inflation

Motorists should brace themselves for record high petrol prices this year as the cost of unleaded fuel surges to £1.20 a litre or more, according to research by the AA. The AA said families now pay £52 a month more on petrol than a year ago and the average petrol price is now £1.15 a litre. The AA today has urged the Chancellor, Alistair Darling, to postpone the introduction of a planned 3 pence rise in petrol duty due to come in on 1 April.

Analysts say increased refining costs and the weakening of sterling against the dollar - the currency in which oil is priced - help explain some of the increases in petrol prices. But others such as Lindsay Hoyle, Labour MP on the Commons business committee, are blaming the petrol companies themselves. Quoted in the Daily Telegraph she says "Crude oil has gone up this year, but nothing like the rise in petrol prices. Motorists are being legally mugged at the forecourt by petrol companies."

There are concerns that with the UK only just emerging from recession fixed income families could struggle to cope with the fuel price rises. Some quarters have claimed that surging petrol prices will also hit supermarkets which have recently absorbed some of the cost of pump increases. Furthermore, a drop in car usage would likely see a drop in supermarket visits and possibly a corresponding drop in sales, would be a blow for the retail sector.

While some of this may be true, food is a necessity and perhaps more people will be inclined to turn to internet shopping offered by the larger supermarkets and use their cars less. While I agree that a further increase of 3 pence in petrol duty may be premature it does highlight the inordinate level of tax UK drivers are forced to pay.

One concern I have is that if fuel prices increase further then delivery costs will also rise and hence so will the cost of goods we buy (i.e. inflation). So a double whammy for consumers who own a car. Let’s hope we are not in for a summer of fuel protests.

As an aside the cost of holidaying in the UK will inevitably go up if fuel prices rise (it’s a long way from London to Cornwall) which might turn people back to budget airlines and a foreign get away to in the sunshine. But then their pound won’t go very far abroad. So depending on which wins the ‘value’ tug of war it could also be bad news for UK tourist spots

But, on a positive note check tomorrow’s money tip for a way to save on your fuel costs.