Cost of motoring revealed by NatWest economists

Falling petrol and diesel prices have contributed to a decline in the PHI, most notably since 2014. Last year the PHI fell by 4% and as of Q1 this year has fallen by another 2%. As a result, the PHI is at its lowest level since 2009, though rising fuel costs of late suggest we have passed the trough.

The fall in fuel prices had acted as a tax cut and a much needed fiscal boost but how significant have these fuel price falls been? It is perhaps worth introducing a Top Gear challenge at this point. Driving from John O’Groats to Lands’ End would have cost £95 of diesel in your Nissan Qashqai in 2014; last month it would have be £19 cheaper at £76.40.

All this talk of falling prices has not extended to car repair and maintenance bills or insurance. Repair and maintenance bills increased by over 2% last year and are 10% higher relative to 2010. They are up 38% over the last decade. The good news is that repair and maintenance costs are rising at less than half the pre-recession long-term average (5.7%).

2015 was not a good year for insurance costs either, with transport insurance premiums up over 3% - its steepest annual rise since 2011. But it gets worse. Transport insurance has jumped over 11% in the 12 months to March 2016. Transport insurance premiums have doubled since the recession began in 2008.

What about car loans? Alongside falling fuel prices, motorists taking out personal loans to purchase a car have experienced plummeting interest rates. Last year the average interest rate on a £10k personal loan fell below 5% and averaged 4.4% for the year. This compares with almost 10% back in 2010 and 17% back in 1995.

Falling interest rates on car loans have not been accompanied by falling car prices, at least not for new cars. Last year, new car prices in the UK rose by 2% (double the rate in 2014), which compares with broadly flat CPI (0.4%). The latest figures in 2016 show that annual price rises have slowed to just over 1%. This is still twice the headline rate of CPI. Meanwhile second-hand car prices fell last year at their fastest rate since 2008 (-6%).

Over the last five years new car prices have risen by less than 4%, whereas second hand car prices have fallen by four times this amount. This might appear strange. But it is worth remembering that the mix of cars falling into this basket of goods has changed. Smaller, cheaper brands have entered the second hand basket.