Unit 1 Micro: High price of petrol drains demand

New figures from the Automobile Association (AA) show that motorists in Britain are buying less fuel in response to record highs for petrol and diesel prices. They bought one billion fewer litres of petrol and diesel in the first three months of 2011 compared with the pre-credit crunch January to March 2008 period. It seems that high prices have incentivised drivers to cut back on their driving to save money and the pressure to economise has been raised by higher levels of VAT and a fall in real wages.

The AA surveyed over 11,000 of fifteen million members and found that three quarters of respondents are cutting back on spending and/or driving because of rising fuel prices.

Service stations sold 835 million fewer litres of petrol and 247 million fewer litres of diesel in January to March 2011, compared with in the same period three years earlier. This equated to a 15.2 per cent slump in petrol sales and a 6 per cent fall in diesel sales. Over the same time frame, petrol increase by 8p a litre and diesel go up by 11p a litre. The AA finds that the UK has the twelfth highest unleaded price in Europe and the second highest diesel price

A number of family cars now cost more than £100 to fill up a tank, and garages have reported many people can only afford to fill up a quarter of a tank at a time. One might expect that if prices stay high, the demand for fuel-efficient cars will increase but much will depend on whether consumers have sufficient confidence and money available to make a new purchase. For many cash-strapped families, tough economic conditions have caused them to cut down on the number of car journeys deemed to be unnecessary.

The steep reduction in petrol sales is bad news for rural filling stations many of whom are struggling to survive, and also for the government which loses hundreds of millions of pounds in fuel duty revenue.

But on the flip-side, other businesses are taking advantage. Passenger numbers on bus and rail services are growing, more people are buying bikes, and car recovery businesses such as Green Flag are having more call-outs from drivers who have stalled after allowing their fuel tanks to run dry!

Fewer cars on the roads will help to sustain an improvement in road safety numbers but as more people choose to run older cars and cut back on routine servicing and maintenance even lighter traffic volumes could lead to more pollution.