January 13 ,2015 | by Thiago Kiwi

UK could see great benefits from lowered oil prices, shows research

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Research shows that Britain may see massive boost from the continuing fall in global oil prices.

The decline of oil prices could give the UK economy a huge growth boost, according to research from Oxford Economics. The report estimates that a collapse to $40 per barrel in early 2015 could add around 0.6 percentage points to the overall GDP growth in the UK.

Recently the price of Brent Crude oil, the international standard for tracking oil prices, fell to a new six-year low around $48.50. Since June 2014, the price of oil has plummeted by more than 50 per cent and this dizzying descent has analysts predicting prices as low as $35 per barrel.

 

Sustained low oil prices will act like massive tax cut for SMEs

While some experts believe a cut in the price of oil will have a profound negative impact on certain sectors, namely energy – a view which is held by traders as they look to sell energy related equities, other areas will view low prices as a boon.

Indeed, the slide in oil prices will be welcomed by small and medium-sized enterprises (SMEs), which are “the lifeblood of the UK’s economy”, according to the Confederation of British Industry. In fact, prolonged low prices will effectively act like a humongous tax cut for SMEs.

“It’s a tremendous boost for businesses like us,” said the founder of Pimlico Plumbers, Charlie Mullins, in an interview with the Telegraph.

“If the big power companies also pass on the savings to consumers, that will also help,” he added.

Moreover, as the discount in prices filter down from the big power companies, the benefits should be seen in all areas, due to decreases in transport costs meaning lower prices across the board.

 

Low oil good for those with mortgages or looking to buy

Don’t forget, depressed prices means lower inflation and this would likely stay the Bank of England’s hand from increasing interest rates anytime soon. A move that would help mortgage holders and first-time buyers as they would benefit from the historically low interest rates for longer.

While markets appear to be more focused on the near-term negative impact falling oil prices will have on the energy sector, traders appear to be ignoring the overall positive boost that will be enjoyed by the UK and the global economy.

Thiago Kiwi

Thiago is the LSBF Blog Editor who manages news and features content on the site, and writes about business, finance, technology, education and careers.

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