Jeremy Hunt cheered falling inflation numbers last week, claiming the data showed his plan to fix the economy was working.
But rapidly climbing oil prices now threaten to spoil the party and could become a major pre-election headache for the Government.
Saudi Arabia and Russia, the world’s second and third largest oil-producing nations, have been cutting supplies of crude in a move that threatens to not only halt the downward march of inflation but could push up prices yet again.
By the middle of next year, voters could be facing soaring fuel prices, sticky inflation and much higher housing costs because of high interest rates.
The timing could not be worse: the Conservative Party will by then be fighting the toughest election battle in years. The Tories are already 19 points behind Labour in the polls.
Continued inflation declines not a given
Oil prices have risen by 30pc since June, with the Brent benchmark trading around $94.10 a barrel on Friday. Economists predict it could soon breach the $100 mark.
Petrol and diesel prices have already risen by as much as 9pc at the pump since June and are expected to keep climbing.
It threatens to undermine Rishi Sunak’s promise to halve inflation by December, which would require it to hit 5.2pc.
Inflation fell unexpectedly to 6.7pc in August in a boost for Downing Street. However, Ashley Webb at Capital Economics says rising oil prices mean continued declines are not a given.
“It’s on the edge of whether the prime minister would actually manage to achieve his inflation pledge or not,” he says.
“If oil prices were to rise to $100 a barrel by the end of this year, we would still expect inflation to fall to 5.2pc in December.”
However, if prices keep rising toward $150, “the prime minister would comfortably fail his pledge”, he says.
Oil prices have been climbing as the Opec+ cartel has steadily cut back its crude exports throughout the year. Supply cuts mean that two million fewer barrels are now entering the market every day compared to the start of 2023.
Saudi Arabia and Russia have also introduced additional voluntary restrictions on their production until the end of the year.
Adding to the pain, Vladimir Putin last week banned all Russian diesel exports. A million fewer barrels will be entering the market every day as a result.
Warren Patterson, commodities analyst from Dutch bank ING, says: “The oil market is basically in a pretty large deficit from now all the way through until the end of this year.”
The global market is projected to face a shortfall of 3.3 million barrels a day in the last months of 2023.
“We could very well see Brent trading above $100 a barrel in the short term,” Patterson says.
Higher fuel costs will hit hardest in Tory heartlands
For producers, this is the point. Saudi Arabia makes the lion’s share of its money from fuel exports and its budget only breaks even when prices are between $80 a barrel and $88 a barrel, S&P Global has estimated.
However, Opec+ will face intense political pressure to ramp up supplies next year. Higher oil prices feed into not just higher prices at the pump but also higher inflation overall, as fuel costs contribute to everything from manufacturing to logistics.
Beyond the UK, both the US and India - two big oil consumers - also have elections coming up next year. Politicians will be keen to do everything they can to stop fuel prices becoming the dominant issue.
Petrol prices can easily turn into political flashpoints. Blockades by aggrieved lorry drivers in 2000 caused huge disruption in Britain, while protesters upset by high fuel prices also disrupted motorways last year.
In France, rising fuel prices first sparked the yellow vest protest movement in 2018 and triggered massive protests.
Higher petrol and diesel costs will hit hardest in Tory heartlands where countryside voters are reliant on their cars.
It threatens to undermine the Tory message that the Government is more driver-friendly than a Labour administration would be. This campaign message is seen as key to turning around the Conservative Party’s woeful polling numbers.
“There are at least some people inside the Conservative Party who wish to demonstrate that perhaps they are friendlier to the motorist than they believe the Labour Party to be,” says Sir John Curtice, the polling expert and professor of political science.
That message will be more difficult to get across if drivers are facing much higher fuel costs, he says.
As a result, Hunt and Sunak will be looking nervously at rising pump prices.
“The question is who will people blame?,” says Curtice. “Will they blame the Government or will they blame President Putin?”