Oil prices have hit an all-time high in sterling terms which could lead to further petrol price rises.

These would instantly undo the 1p per litre drop in fuel duty unveiled by Chancellor George Osborne in last month's Budget.

The oil price is rising due to turbulence in Africa and the Middle East.

The impact of the weaker pound, which declined 17% in value in the past two years, means the sterling value of Brent crude oil has risen to a record high of £74.60 per barrel.

But at $121, Brent crude is still below the $147 a barrel record set in the summer of 2008.

The surge in oil prices, triggered by unrest in Libya, a lack of supply co-operation in Iran and strikes in west Africa, is likely to be passed on at UK petrol pumps and add further pressure to already-squeezed disposable incomes.

The surge will provide another headache for policymakers at the Bank of England, who are battling with rising inflation, which hit 4.4% in February, and sluggish growth.

The increasing price of oil will pile pressure on the Bank's Monetary Policy Committee to lift interest rates to curb the soaring cost of living.

However, following the shock decline in GDP in the final quarter of 2010, rate-setters are likely to hold fire for the time being as they wait to see how the economy has fared in the early part of this year.

Record fuel prices

Fuel prices at the pumps have reached new record highs, with diesel passing the 140p a litre mark for the first time last month, according to the AA.

The average cost of petrol is now 133.46p a litre, with diesel at 140.01p a litre.

The record prices will fuel the debate at the MPC's rate-setting meeting this week.

There have been a growing number of MPC members voting for a rise in rates over recent months in light of rising inflation.

At the March meeting, Andrew Sentance voted in favour of a 0.5% increase, while Martin Weale and Spencer Dale backed a 0.25% rise.

But economists predict a deepening consumer spending slump will see rate-setters remain in "wait and see" mode until August at the earliest.

How to slash fuel costs

Joint MoneySavingExpert.com/RAC research has found you could cut fuel bills by up to 60% by following some simple steps.

That equates to a £1,500 a year saving for a household that spends £2,500 a year on petrol or diesel.

Here are our tips for drivers:

  • Look for cheap petrol promotions, particularly in supermarkets. The Cheap Petrol & Diesel guide is updated when promotions are announced.
  • Use Petrolprices.com to find the cheapest local filling station.
  • Accelerate and brake gently.
  • Turn off the air conditioning.
  • Keep your car aerodynamic by ensuring it is clean and free of its roofrack, unless in use.
  • Keep tyres properly inflated.
  • De-clutter your car to make it lighter.

Additional reporting by Guy Anker.

Further reading/Key links

Drive down fuel costs: Cheap Petrol & Diesel
Find cheap filling stations: PetrolPrices.com