What impact will the oil prices have on the uk economy?


The decline in oil prices may come because of different reasons. Oil is one of the most valuable and also traded commodities. It has an enormous impact on transport costs worldwide and can lead both to inflation or higher rates of economic growth depending on the circumstances.

However, in some instances, oil prices start crashing due to fear of economic recession. Luckily, currently, the falling oil prices are not sufficient enough to increase economic growth as there are many more factors involved that keeps the growth low. Bad debts can also occur when certain oil companies go out of business.

Finally, the change in oil prices will impact various countries in different ways. Countries that important oil is going to benefit from lower prices but developing countries that rely on the export of oil will suffer the greatest impact of all.

As far as the UK is concerned, the nation has always had a huge dependence on oil. Since the 1960s, it has represented one of the most important economic factors for the country. This was made apparent upon finding large oil reserves off the shores of the North Sea.

Small Companies Will Benefit

Viewing things from the point of view of smaller companies, lesser oil prices will be beneficial for them. Since these companies do not directly depend on the price of oil, they will see the decline in price as something where they can reduce their working costs.

For example, Mark Normand from Superman.org.uk says that due to the impending Coronavirus situation he does not have so many moves. However, due to the lesser price of oil, he does not spend so much money on fuel.

Generally speaking, the current oil crisis is devastating for some by greatly appreciated by others. Making it one of the greatest reasons for companies that benefit from it in the UK.

Impact on the Current Account

The UK has always been considered one of the biggest producers of oil and gas in Europe. The oil sector has actually contributed to £50 billion annually for the balance of the country. It helps to reduce energy imports and has all kinds of further benefits. However, it also affects the price of the pound as well.

Reducing the price of oil will also influence and reduce the price of the currency. It will subsequently affect the current account balance of the country.

Since 2005, the UK was able to widen the account deficit by becoming a net importer of oil products. In 2014, it reached 5.9% of GDP, as opposed to 3.5% of GDP from 2012. With the help of incoming investments, the UK was able to cover the current account deficit in recent decades.

A Sturdy Economy

In recent years the decline of oil prices, particularly since 2014, has had a negative effect on the economy of the UK. Being a large contributor from oil exports, it is pretty sane to understand why this has happened. Smaller prices of oil products definitely do not benefit an economy as the UK one does develop.

However, there is some good news behind this. Since the country is a major importer of net products, studies have shown that this greatly helps the economy. In fact, lower oil prices benefit the whole situation. It is expected that greater investments are made in sectors like manufacturing, transportation, and services.

Also, the effects on the pound that include stimulus packages in Europe, low European interest rates, and ongoing debt and budget crises in Europe have had a stimulus effect on investors towards the UK.

However, the whole COVID-19 situation has had an unprecedented effect on the entire economy of the world. Oil prices have been expected to rebound by this time and instead, the pandemic has only slowed it down. The situation is pretty devastating for countries that greatly depending on exporting oil. Luckily for the UK, it didn’t have as devastating of an effect as for those other countries. At least for now.

The future is not easily predictable at this point and the best we can hope for is for all of this to blow over fast.