Early on Tuesday morning, Prime Minister Theresa May revealed her surprising decision to hold a snap general election. The Prime Minister has said it will create certainty for Brexit; critics see it as a power grab while opposition parties are weak. Here, we assess what impact this important change might have on fuel prices over the coming months.

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Impact on the pound

In response to the announcement, the value of the pound against the dollar dropped by 0.5%. It then rebounded, closing 2% up against the dollar, its highest level in over six months. In the short term, this will benefit fuel prices at the pump and if the pound continues to strengthen we could see prices fall by up to 5p a litre in the next month.

What the experts think

Broadly speaking, market experts believe the snap general election is good news for the UK economy and for Brexit negotiations, as it will strengthen May’s hand at the table with the EU (assuming she wins).

Morgan Stanley thinks it reduces the risk of a “disorderly Brexit.” The Conservatives will make clear in their manifesto that control of borders, courts and laws are the red lines that can’t be crossed, leading to a World Trade Organization hard exit if the EU fails to agree on these terms.

Deutsche Bank’s George Saravelos called the Prime Minister’s announcement “a game-changer for both the UK’s Brexit negotiations and sterling,” according to the FT.

In effect, the snap election will bolster the economy and the pound. Confidence in the market is up, although the FTSE fell following the news of the election, with companies worrying about tariffs imposed on them when operating outside the single market.

Likely impact on fuel prices

In the next few weeks, we expect fuel prices to fall slightly, as the wholesale price of oil per barrel continues to fluctuate in the mid $50 range. Petrol retailers buying with a stronger pound will enjoy lower costs as a direct result of sterling’s strength.

Most experts think that May will win this general election by a significant majority. The likely impact on fuel prices if that happens is positive.

If May is re-elected with a landslide, we’d expect the pound to rise further. Assuming the price of crude oil stays in the same range, that means prices could drop even more in the summer.

If May wins marginally, and there is a high Remain turnout, we could instead see a rise in fuel prices, as confidence drops about the future of the country when tackling Brexit and the economy.

We can see that Prime Minister Theresa May is trying to act decisively to create more of a mandate to push through the Brexit negotiations, with the full exit likely to be in 2022 due to transitional agreements. In the short term (to June) this looks like it will be good news for fuel prices. What happens when negotiations with the EU get underway in late June is less clear.

Tell us what you think about this snap general election decision. Can you foresee cheaper prices in the coming months or do you think that prices will go up because of this?

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