UK to ban petrol and diesel cars in pursuit of cleaner air

August 2, 2017

The government announced last week that sales of diesel and petrol cars were to be banned from 2040 to improve air quality and reduce carbon emissions. This follows a similar commitment from the French as well as a series of announcements from car manufacturers aiming to increase their production of alternatively powered vehicles. While this target is still a long way out it is likely to increase the pace of development of electric vehicles by manufacturers who are keen to capture this market. While there is still government support in many countries for the purchase of electric cars, the disparity in cost relative to petrol and diesel vehicles is narrowing rapidly, and there may be a cost crossover before the deadline. This could have significant implications for traditional manufacturers, oil companies and utilities.


While the UK has experienced increased rates of inflation over the last year, the measure is not fully capturing the full increases in cost for some products. The phenomenon known as “shrinkflation” has been highlighted by the ONS, who pointed out that as many as 2,500 products have reduced in size over the last five years. The list includes toilet rolls, coffee, fruit juice and chocolate bars. Smaller sizes of products have enabled companies to maintain or expand margins while not hiking prices. Given that these changes in size are not fully captured in the price focused inflation figures, the true rate of over this period, particularly in food and drink which make up over 10% of the overall figure may be higher.


The UK economy posted a disappointing 0.3% GDP growth rate during the second quarter of the year. This was lower than the 0.5% anticipated, although ahead of the 0.2% delivered during the first three months. Contracting construction and manufacturing sectors detracted from growth. However, this was once again offset by a strong services sector (making up 80% of the economy), which grew by 0.5% over the three months, helped particularly by shopping and filmmaking. Downwardly revised expectations by the IMF for 2017 growth indicate that the UK is already disappointing, after a stronger than expected 2016. Many will be hoping for a better outcome during the second half; however, there appear to be few reasons to believe that there will be a significant surprise to the upside.


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The Bank of England interest rate decision will be released on Thursday followed by US non-farm payrolls and unemployment rates for July, on Friday.