THE day when we have to pay a pound for a litre of petrol is not far away.

Soaring worldwide demand and political instability in the Middle East are propelling us towards this unhappy scenario.

The price of crude oil is been around $60 a barrel for some time, and that has pushed up the average cost of unleaded to more than 90p.

While you can still find petrol stations charging 85.9p, the typical price is closer to 90p, and in London has already topped the pound mark.

Interestingly, outlets that tend to charge a lower than average price for petrol do not do the same with road diesel. It is hard to discern a reason for the widely varying gaps between petrol and diesel, which can range from 8p a litre to 2p.

The cost of producing diesel is higher, and since the harmonisation of duty between petrol and diesel, the price differential has widened.

More motorists than ever are choosing diesel cars because of the lower level of consumption of what is still regarded as a "dirty" fuel and the tax benefits for company car drivers.

But the higher cost of diesel is almost wiping out the price/miles per gallon advantage.

This soaring demand for diesel is causing concern across Europe, with refining capacity unlikely to cope in the coming 10 years or so.

According to the Financial Times, a new study has found that Europe will face a severe shortfall without huge investment in refineries.

Europe currently consumes 200 million tonnes of diesel a year, but there could be a 50 million tonne shortfall by 2015.

Experts expect petrol demand to fall by one per cent this year and road diesel to rise by three per cent.

The cost of living implications cannot be overlooked. Everything we buy in the supermarket has travelled by road, a lot by air, too.

Although businesses can reclaim VAT on their purchases, haulage costs are rising steeply. These are already feeding through to the shops, which is perhaps one of the reasons for the downturn in the High Street.

All in all, the economic picture is mixed, with consumers no longer driving the economy like they once did. Manufacturing and business are not bridging the gap.

Where once we were ticked off for spending too much, the implication now is that we are not spending enough.

But when trouble is around – falling house prices, high credit card bills, terrorist threats, rising fuel costs – we lose confidence.

It is doubtful whether the recent quarter per cent base rate cut is enough to bring it back. Another cut is needed – and soon.