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Could the price of oil derail the UK economic recovery?

As the UK economy continues to give conflicting signals to investors and consumers around the country the Independent Energy Agency (IEA) has today issued a report highlighting concerns that the price of oil could impact upon the worldwide economic recovery. Interestingly the IEA has found no evidence of increased domestic demand for oil in the short to medium term amid suggestions that speculators are pushing the price higher and higher in the expectation that the worldwide economy will recover very soon.

As the price of oil moves towards $70 a barrel, from a December low of $30, there are concerns that we could see the price spike yet higher. This is a very delicate situation because oil, and fuel in particular, has such a significant impact on the cost of many goods and services in the UK and around the world. If the price of oil continues to rise it is almost inevitable that corporate profitability would come under pressure, more companies would need to slash their workforce and net debt in corporate UK would continue to rise.

A return to a weaker UK economy would not only impact on investment and UK businesses but also has the potential to severely impact upon the rising level of confidence in the UK economy.

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