UK diesel hits 198.32p as Bailey warns on rates

UK diesel prices are closing on an all-time high, with the average litre reaching 198.32p, according to RAC data reported by The Guardian on 25 September 2026. That is within a penny of the 199.09p record set in 2022.

RAC head of policy Simon Williams said the record would almost certainly be passed over the weekend as retailers keep passing on higher supply costs. Petrol is averaging 173.6p, its highest in more than four years, up nearly 12p in September and more than 40p since the Iran war began. Diesel has climbed 14.5p this month alone and 55p since 28 February.

Also read: GB energy bills forecast to rise £276 a year from January

Key facts

• Average UK diesel price: 198.32p a litre, against a previous record of just over 199p set in 2022.
• Average petrol price: 173.6p a litre, the highest in more than four years.
• Brent-type crude hit $106 a barrel, having traded near $100 for two weeks.
• Bank of England governor Andrew Bailey said high energy prices make it harder to hold interest rates.
• Morgan Stanley now forecasts Bank Rate hikes in November and February, a change from its previous call for no hikes.

Bailey points to energy costs

Speaking at a Monetary Economics Conference at St Hilda’s, Oxford, Bailey said the Bank had stressed that the longer high energy prices last, the harder it becomes to keep borrowing costs unchanged. He said there is no question that first-round effects of higher energy prices are showing up, while pass-through into wider prices is still subdued and it is early days.

Bailey also described the present period as one of big, repeated negative supply shocks, and suggested artificial intelligence could act as a positive shock. He confirmed that Bank staff are using a large language model to review Monetary Policy Committee minutes, asking whether the resulting summary matches the committee’s intent.

Also read: UK inflation climbs to 3.5% as fuel prices drive September rise

Rate expectations shift

Morgan Stanley analysts Bruna Skarica and Fabio Bassanin told clients they still think with conviction that any improvement in oil and refined product supply would leave the Bank on hold, but that maintaining a prolonged hold as their main call is difficult given recent Middle East newsflow. The bank now expects increases in November and February and a growth slowdown around the turn of the year.

UK mortgage rates have stopped rising after several days of increases. Moneyfacts data show the average two-year fixed residential mortgage rate unchanged at 5.92%, the highest since July 2024, and the average five-year fixed rate unchanged at 5.94%, the highest since October 2023. French president Emmanuel Macron said he pressed US president Donald Trump not to ban diesel exports.

Confidence rises, with caveats

GfK’s Consumer Confidence Barometer rose one point to -13 in September, the highest since August 2024 and the first three-month run of gains since summer 2024. GfK consumer insights director Neil Bellamy said the return of higher inflation removes one of the strongest positives from previous months, and asked whether sentiment could falter as inflation, energy and fuel prices rise. The Major Purchase Index fell one point, the only measure to decline, while the Savings Index rose five points. The reading runs counter to S&P Global data earlier in the week showing UK consumer confidence at a three-month low.

Why it matters

Diesel sets the cost base for haulage, farming and delivery, so a near-record pump price feeds into the price of goods well beyond the forecourt. Households refinancing mortgages already face rates at multi-year highs, and a shift toward rate rises would tighten budgets further. The GfK reading suggests a summer improvement in sentiment tied to the new government’s measures is losing momentum as energy costs bite.

What to watch

Whether the 199.09p diesel record is passed in the coming days, and whether oil holds near $106 a barrel or retreats if the US and Iran reach a deal. The Bank’s next rate decision and the November and February meetings Morgan Stanley has flagged are the points where the energy-price debate will be tested.

The RAC’s Williams said a significant drop in the price of oil is badly needed but appears unlikely without a US-Iran agreement. Nothing here is financial advice, and energy and currency markets remain volatile and hard to predict.

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Source: The Guardian