Page last updated at 00:11 GMT, Monday, 5 January 2009

Falling oil prices 'benefit UK'

Oil pump
Falling oil prices are predicted to be a benefit to the UK economy

The British economy and consumers are set to benefit from falling oil prices over the coming three years, according to a think tank.

The Ernst & Young ITEM Club said that the fall in growth expected this year would be reduced if oil prices remained at their current levels.

But the independent economic forecasting group warned of the downsides of sustained low prices.

Oil prices currently stand at about $40 (27) a barrel.

Previously, the cost of oil had stood at almost $150 a barrel (103).

Now the ITEM club, which uses the same method of forecasting as the Treasury, says that these lower prices will deliver what it describes as "a substantial boost" to the economy over the coming years.

And it says that if oil stays at around $40 a barrel, the UK economy would shrink by 0.3% less this year than if prices had remained much higher.

The think tank also predicted that manufacturers and exporters would benefit the most.

However, it warned that falling oil prices would have a negative impact on North Sea oil revenues and government spending power.

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