'Britain should prepare itself for an imminent oil price shock'

Peak oil prices are an imminent risk to the stability of the British economy and the standard of living of its most vulnerable members, an industry taskforce warned yesterday.

Despite the extra two years' grace thanks to the recession, the rising cost of oil will affect every aspect of British lives within five years, warned the UK Industry Taskforce on Peak Oil and Energy Security, which includes Sir Richard Branson's Virgin Group, the transport giant Stagecoach and the engineering consultancy Arup among its members. Travel, food, heating and retail costs are particularly exposed.

"Oil remains the building block of economic life and the UK is very vulnerable to big price rises in the future," Sir Richard said.

Even if Western economies' thirst for oil is held relatively stable by energy efficiency measures, demand from the rapidly industrialising developing world will push prices up sharply because production much above the current 85 million barrels per day level is not thought possible. And even if oil can be extracted faster – from recently discovered sources in the Arctic or the Gulf of Mexico, for example – it will be much more expensive because of the technical difficulties associated with such unconventional sources, the report says.

John Miles, a director at Arup, said: "We are not saying there is not a lot of oil left in the ground, but there is a limit to the rate at which we can extract it."

The taskforce is calling for a government forum to address the problem before it arises, and to speed up moves to alternative sources of energy and improvements to efficiency.

The situation is made more perilous by the UK's shift from an oil exporter to a net importer in recent years. A balance of payments skewed by sharply rising expenditure on imported oil will make funding the transition to a low-carbon economy even more difficult. And rising oil prices, combined with a move away from "dirty" coal, will also push up the cost of gas.

There is no time to waste, says the group. "We have to move from strategy to delivery and we are not doing that fast enough," Ian Marchant, the chief executive of ITOPES member Scottish and Southern, said.

Meanwhile, Opec yesterday trimmed its 2010 oil consumption estimates because of the slow rate of economic recovery. Global demand for oil will grow by 810,000 bpd, some 10,000 bpd less than previously forecast.