The pressure on world oil prices has led to record costs for fuel in Britain, raising concerns that household incomes could be hit significantly and the government may have to change its policies.

The average price of petrol in Britain has hit a new record of 1.32 pounds (2.14 U.S. dollars) per liter. Such petrol spike in Britain is “very much based on what’s happening in Libya and in the Middle East at the moment,” said Andrew Howard, spokesman for the Automobile Association, one of Britain’s oldest motoring organizations.

The toppling of regimes in the North African states of Egypt and Tunisia has created much unease in the Middle East. Oil prices have been pushed high by disruption of oil supplies in Libya after unrest broke out there in mid-February, and a continuing fear that the armed confrontation between Muammar Gaddafi and rebels opposing to his rule may escalate.

Pessimists worry that similar disruption could happen in other major oil-producing countries in the Middle East.

In Britain, average petrol prices in mid-February hit yet an all-time high of 1.28 pounds (2.08 U.S. dollars) a liter in response to the uprisings in Egypt and Tunisia. It then rose nearly 4 pence a liter in response to turmoils in Libya.

Howard told Xinhua that fuel prices were also driven higher by retailers attempting to recoup profits lost after a winter of bad weather which forced drivers off the roads in November and December, and by an increase in the sales tax VAT from 17.5 percent to 20 percent starting in January.

In Britain, petrol prices stay higher than most other countries due to central government taxation.

Howard said tax now represented 62 percent of the cost of a liter of petrol, but it used to be as much as almost 80 percent in 2000, indicating that the present spikes were driven by mostly external forces rather than government policy.

In 2000, surging gas prices sparked protests and strikes led by lorry drivers and farmers who blockaded the entrances to oil refineries and oil shipment depots, which resulted in widespread food shortages and disrupted industrial production.

The government is keen not to see that again, and also to keep the economy moving. Chancellor of the Exchequer George Osborne will announce his budget for the coming fiscal year on March 23. Domestic media are full of speculation that Osborne may act to reduce gas prices for consumers, perhaps by lowering taxation or creating a taxation mechanism that responds to world oil prices.

A British exchequer spokesman said: “The government recognizes that higher fuel prices increase the cost of living for people and is examining options as part of the budget process, including a fair fuel stabilizer that would reduce fuel duty as oil prices rise but increase them when they drop.”

PUBLIC CONCERN

Market trader Gavin Harman said he noticed food prices were going up. “The cost of fruit and vegetables has gone up, I think it’s because of the higher fuel prices. It costs more to deliver the produce. I hope it doesn’t go up any more,” he told Xinhua.

Nursing assistant Valerie Jones said she felt unaffected by rising fuel prices because she did not own a car. “I hope fuel prices don’t stay at this high level. If they do, my weekly shopping may cost more.”

Alan Maynard, an IT technician, said he had read newspaper headlines about high fuel prices, but fuel prices had been high for some time already and he did not feel the present situation was a crisis.

“Already I think twice about using my car, especially with good public transport in London,” he said. “The real crisis could come if there is more unrest in the Middle East. That could send oil prices shooting up, and then who knows what could happen?”

A leading environmental group, Greenpeace, sees the high oil prices as a signpost that the government must change direction on policies and move away from oil.

Vicky Wyatt, head of Greenpeace’s transport campaign, said: “This is at least the fourth time in the last 10 years that volatile oil prices have pushed the cost of motoring right to the top of the political agenda. Every time the issue does raise its head the politicians tinker with the tax regime rather than addressing the cause of the problem — which is our country’s dangerous over-dependence on oil.”

“Ministers should act immediately to ramp up the efficiency of our cars and invest in electric vehicles by driving forward urgent measures to reduce the amount of oil we use,” she added

She said that by doing this the government could save money, boost new industries and reduce carbon emissions all in one go. “It is time to go beyond oil,” Wyatt said.

However, the British government also views higher oil prices as a spur to innovation, and an incentive to move toward an economy which uses less oil.

In a speech to British business leaders on Wednesday, the coalition government’s minister for energy and climate change Chris Huhne said that record oil prices in the 1970s and 1980s had sparked a technological advancement from vehicle manufacturers to make engines more fuel efficient.

BRITAIN AS AN OIL PRODUCER

Britain is a producer of oil, from its North Sea oil fields. The price of Brent crude oil has risen 15 percent over the past month, largely in response to the crisis in Libya.

World oil price hikes also add government taxation revenue from the North Sea oil fields, bringing at least some positive effect on Britain.

Nevertheless, a British government spokesman said higher world oil prices did not always translate into a taxation windfall for the British government.

In addition, only 13 percent of the British economy is now based on manufacturing, whereas in the 1970s when a major oil crisis broke out, manufacturing used to dominate the country’s economic output. Back then, high oil prices caused a major slump in manufacturing and the whole economy. That couldn’t be the case now.

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The U.S. federal government’s budget deficit surged by 222.5 billion U.S. dollars in February, the largest monthly budget deficit increase, the Department of Treasury figures revealed Thursday.

This is the fresh evidence of the ballooning budget deficit in the world’s largest economy. Experts held that although the nation vowed to cut deficit and restore fiscal discipline, the serious austerity policy is not in the near term. In fiscal year 2010, the U.S. budget deficit hit 1.29 trillion dollars after it recorded 1.42 trillion dollars in fiscal year 2009.

Since last year, the fiscal position in the nation has further worsened, partly due to the tax-cut compromise package passed by the lame-duck Congress in December last year and rising outlays for entitlement programs including Medicare and Medicaid.

“The gap between spending and revenues is likely to remain very large even after we return to normal economic conditions,” Douglas Elmendorf, director of the Congressional Budget Office (CBO), said earlier this week.

The U.S. federal budget deficit is projected to equal 9.8 percent of gross domestic product (GDP) in 2011, the CBO said Thursday in a report.

Related:

Negative economic news slams Dow below 12,000

NEW YORK, March 10 (Xinhua) — U.S. stocks plunged on Thursday, with the Dow Jones industrial average ending below 12,000, amid a flurry of negative economic news.

Thursday’s sell-off was across the board. All 10 sectors in Standard & Poor’s 500 Index settled in the red, with energy and financials leading the decline.    Full story

U.S. trade deficit widens in January on oil price surge

WASHINGTON, March 10 (Xinhua) — The U.S. trade deficit in January widened to 46.3 billion U.S. dollars due to a spike in oil prices, the U.S. Commerce Department announced Thursday.

January exports of 167.7 billion dollars and imports of 214.1 billion dollars resulted in a goods and services deficit of 46.3 billion dollars, up from a revised 40.3 billion dollars in December 2010.

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U.S. stocks plunged on Thursday, with the Dow Jones industrial average ending below 12,000, amid a flurry of negative economic news.

Thursday’s sell-off was across the board. All 10 sectors in Standard & Poor’s 500 Index settled in the red, with energy and financials leading the decline.

The only stock closed up in the 30 Dow components was McDonald’ s, gaining 1.19 percent, after equities research analysts at Deutsche Bank reiterated a “buy” rating on the company in a research note to investors on Thursday.

Investors got bad news from several angles on Thursday. Before the opening bell, the Labor Department said the number of people seeking unemployment benefits rose by 26,000 to a seasonally adjusted 397,000 last week.

The increase came after applications hit their lowest level in nearly three years, and investors expected that the decline will continue as the economy improves.

Meanwhile, the Commerce Department said Thursday that the January deficit jumped 15.1 percent to 46.3 billion U.S. dollars, the largest in six months, due to higher oil prices and stronger demand for cars and machinery.

Adding to the weakness, Moody’s Investors Service slashed Spain ‘s rating by one notch to Aa2 and warned that a further downgrade is possible if indications emerge that Spain’s fiscal targets will be missed, and if the public debt ratio increases more rapidly than currently expected.

Moreover, China reported an unexpected 7.3-billion-dollar trade deficit for the month of February, spurring worries that the Chinese economy was slowing down.

As of Thursday’s close, the Dow Jones industrial average tumbled 228.41 points, or 1.87 percent, to 11,984.68. The Standard & Poor’s 500 Index dropped 24.91 points, or 1.89 percent, to 1,295. 11. The Nasdaq declined 50.70 points, or 1.84 percent, to 2,701.02.

On other market, U.S. crude oil fell on Thursday as dollar strengthened on European debt woes. Light, sweet crude for April delivery fell 1.68 dollars to settle at 102.70 dollars a barrel on the New York Mercantile Exchange.

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