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British firms take a fresh hit as oil prices hit $120 a barrel

Britain dealt a fresh blow as oil hit $120 a barrel: fears that rising oil prices and falling sterling would trigger a new surge in inflation for businesses and consumers

  • The latest surge comes on the heels of a 6 percent surge last week, raising fears it will push inflation further up – already at a 40-year high of 9 percent
  • Analysts said the surge came on signs that China’s Covid restrictions are being eased, which is helping to boost the economy
  • The oil price concern comes amid fears that homes across the UK could face blackouts this winter if Russia cuts energy supplies further

UK business was dealt a fresh blow as oil prices hit their highest level in two months.

Brent crude prices rose to $120.42 a barrel for the first time since March, boosted by the easing of Covid restrictions in China and European Union officials grappling with a ban on Russian oil imports.

Brent Crude rose nearly a dollar in trading yesterday, hitting its highest level since the first weeks of Russia’s invasion of Ukraine. The latest surge comes on the heels of a 6 percent surge last week, raising fears it will push inflation further up – already at a 40-year high of 9 percent.

UK business was dealt a fresh blow as oil prices hit their highest level in two months

Analysts said the surge came on signs that China’s Covid restrictions are being eased, which is helping to boost the economy. This week also marks the start of the traditional US “driving season,” when drivers across America fill up their cars before long vacation trips.

At the same time, EU leaders met in Brussels yesterday to draft a sanctions package that includes an embargo on Russian crude oil in response to Vladimir Putin’s war on Ukraine. But last night leaders struggled to agree to an oil embargo as Hungary – which has close ties with Putin – refused to back the sanctions.

The oil price concern comes amid fears that homes across the UK could face blackouts this winter if Russia cuts energy supplies further. There are fears Britain’s electricity could be rationed early next year, urging Business Secretary Kwasi Kwarteng to ask Britain’s last remaining coal-fired power stations to delay their closure so the lights stay on.

There are also concerns that oil prices, which have been above $100 a barrel since late February, could lead to higher costs across the economy if they remain high. Justin Urquhart Stewart, co-founder of Seven Investment Management, said higher crude oil prices would create “additional costs to feed into the system” and hurt company profits.

Brent Crude rose nearly a dollar in trading yesterday, hitting its highest level since the first weeks of Russia's invasion of Ukraine

Brent Crude rose nearly a dollar in trading yesterday, hitting its highest level since the first weeks of Russia’s invasion of Ukraine

He said companies have “two choices” – to absorb higher fuel costs and hurt their profit margins, or “raise prices” and dampen customer demand. “It’s very difficult indeed,” Stewart said, adding that if companies didn’t know what was going to happen next, they “wouldn’t take more risks.”

He also warned consumers would have “less demand” due to nervousness about the cost of living.

“Things are looking a little grim,” Stewart said. High oil prices will be bad news for motorists after prices at the pump hit record highs last month. It will also weigh on the profits of supermarkets, which like other businesses are facing rising transport and energy costs.

In addition, households will continue to face soaring energy bills, one of the biggest drivers of inflation. Meanwhile, escalating crude oil costs are expected to hit airlines, which are already struggling to recover from a hammering during the pandemic, when travel restrictions grounded planes and their owners bled out cash.

John Strickland, an aviation analyst, told the BBC that rising oil prices would have an “increasing impact” on the aviation sector in the summer season, warning airlines their profits could either be wiped out or losses worsened as a result of rising fuel costs.

“The red ink will flow even more,” Strickland said, adding that some smaller, weaker airlines could go bust. He also warned that airlines may try to cut costs during the winter months as these would pose “the biggest challenges”.

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British firms take a fresh hit as oil prices hit $120 a barrel

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