UK diesel nears record as Iran war lifts oil and rate-rise odds

Diesel across the UK averaged 198.32p a litre on Friday, closing in on the all-time high of just over 199p set in 2022, as the Iran war continued to squeeze global oil supplies, Theguardian reported.

The RAC, which compiles the figures, said the previous record of 199.09p was almost certain to fall over the weekend. Simon Williams, head of policy at the motoring group, said retailers were still passing on higher costs from new supply, and that petrol now averages 173.6p a litre, its highest in more than four years.

Also read: Crude Oil Settles Higher as Diplomacy Doubts Cloud US-Iran Conflict

Key facts

• Average UK diesel price: 198.32p a litre, against a previous record of 199.09p set in 2022, per the RAC.
• Diesel has risen 14.5p in September and 55p since 28 February; petrol is up nearly 12p this month and more than 40p since the Iran war began.
• A barrel of oil hit $106, having traded around $100 for the previous two weeks.
• Bank of England governor Andrew Bailey said holding rates steady gets harder the longer energy prices stay high.
• Morgan Stanley changed its call on Friday and now forecasts UK rate hikes in November and February.

Bailey leaves the door open on rates

Speaking at a Monetary Economics Conference in Oxford, Bailey said the Bank had been explicit that its stance becomes harder to maintain as energy costs persist, and that first-round effects of higher energy prices were already visible, though pass-through to the wider economy remains subdued for now.

He described the current period as one of repeated, large negative supply shocks, and suggested artificial intelligence could act as a positive counterweight. The Bank is also using a large language model to review Monetary Policy Committee minutes and test whether its messaging reads as intended, an exercise Bailey described as helpful while admitting to mixed feelings about the direction of travel.

Also read: OECD Lifts UK 2026 Growth Forecast to 1.1%, Cuts Inflation to 3.1%

Morgan Stanley’s Bruna Skarica and Fabio Bassanin told clients that an improvement in oil and refined product supply would keep the Bank on hold, but that holding that as a base case has become difficult given the Middle East newsflow. The US bank also expects growth to slow around the turn of the year.

Why it matters

Pump prices feed directly into household budgets and the inflation measure the Bank targets, so a sustained move higher raises the odds that borrowing costs rise rather than fall. That prospect is already visible in the mortgage market, where Moneyfacts reported the average five-year fixed rate unchanged at 5.94% and the two-year at 5.92%, both at multi-year highs.

The squeeze arrives alongside a split picture on sentiment. GfK’s consumer confidence barometer rose to -13 in September, its highest since August 2024, but the researcher noted that renewed inflation removes a key support and that the major purchase index fell while the savings index gained five points.

What to watch

Whether diesel clears the 199.09p record in the coming days depends on crude, which the RAC tied to a deal between Washington and Tehran. The next firm signals are the US durable goods and University of Michigan sentiment releases, Bailey’s appearance on the Oxford panel and the Bank’s November decision.

Written by

Benjamin

Benjamin Carter covers business, finance, and the stock market for StockPil, focusing on the trends and data that matter to everyday investors.

Source: The Guardian