* UK seen among worst hit as inflation high
* Adds gloom to weak states in euro zone periphery
* Strong currencies to help Switzerland, E.Europe
(Repeats Sunday story without changes to broaden
distribution)
By David Milliken and Dmitry Zhdannikov
LONDON, Jan 16 (Reuters) - The UK and Europe's weakest
economies are looking most at risk from a surge in crude oil to
near $100 a barrel that threatens a nascent recovery.
The higher costs of everything from gasoline to heating oil,
jet fuel and the myriad of products that have an oil component
is a tax on growth at a time when prospects for recovery in
these countries are so fragile.
While few analysts see oil returning to its high of $147 hit
in 2008 because of oil producers' excess capacity, crude prices
do represent a threat to the global economy and particularly to
Europe at levels even well below that.
"Whenever the size of the energy sector in the global
economy reached 9 percent, we went into a major crisis," said
Sabine Schels, a commodity analyst at Merrill Lynch.
"It was in the 1980s and it was the same in 2008. Right now
we are at about 7.8 percent and if you go above $100 per barrel
to $120 per barrel, you get to that 9 percent level."
Rising oil prices may increase pressure on the Bank of
England to raise interest rates to offset already high
inflation, some economists said.
The weakness of the euro due to the euro zone's debt crisis
will also make the higher oil price more difficult to swallow in
weak economies such as Greece, Ireland, Portugal and Spain.
By contrast, Switzerland and some East European nations will
be able to sustain the pressures due to strong currencies which
alleviate the effects of dollar-denominated oil prices rises.
"A couple of years ago when we had very high inflation
because of oil and utility bills, the Bank of England was able
to look through it," said BNP Paribas economist Alan Clarke.
"But it's much harder to look through it now, when headline
inflation is over 3 percent," Clarke said. The BoE's last
inflation forecast assumed 2011 oil price at under $90 a barrel.
On Friday, Brent oil futures <LCOc1> hit $99 per barrel and
U.S. crude future <CLc1> were at around $90 with analysts
predicting U.S. crude would breach $100 a barrel in the first
quarter of 2011 []
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a graphic on food and fuel contributions to inflation
http://r.reuters.com/gup46r
For a graphic comparing average pump prices across Europe
http://r.reuters.com/wez46r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
PERIPHERAL WOES
Oil at $100 a barrel would add about one percentage point to
the headline UK rate of consumer price inflation with most of
the impact coming from a steep rise in utility bills as natural
gas prices are linked to oil, estimates Clarke.
By contrast, Italian CPI moves more slowly than in most
European states due to the disproportionate importance of excise
duties.
Electricity and gas prices are partly administered by the
state while Italian inflation stood at 2.1 percent last year.
For peripheral euro zone countries in general, the oil
prices rally may not lead to an increased risk of bailouts as
higher inflation could boost nominal GDP, possibly helping to
reduce ratios of sovereign debt to GDP.
But it will nevertheless undermine attempts to regain
competitiveness in countries such as Portugal or Spain.
"Purchasing power will be reduced and they are already
suffering from poor labour growth prospects," said Marco Valli,
chief euro zone economist at UniCredit.
STRONG CURRENCIES
Germany economy minister Rainer Bruederle said on Friday he
saw no immediate threats for Germany and Europe in general.
That echoed European Central Bank's President views that
rates were still appropriate despite upward inflationary
pressure including from energy prices []
Julian Callow, chief European economist at Barclay's
Capital, said the eurozone's GDP growth could contract by 0.2
percentage points should oil prices stay at current levels.
"However, we are not likely to see the end of price
increases since they tend to first come to an end when there is
either recession or significant monetary policy tightening --
neither of which is in sight," he said.
Among the least hit by the oil spike economists name
Switzerland which has seen a 16-percent appreciation of the
franc against the dollar in the past six months amid low
inflation.
"The Swiss economy is certainly one of those economies that
suffer the least," said Sarasin bank's analyst Alessandro Bee.
Strong currencies will also help Poland, Hungary, Slovakia
and the Czech Republic.
"There is a lot of positive momentum in growth, particularly
in emerging Europe, which is benefiting hugely from German
growth," said Koon Chow, a strategist at Barclays.
