LONDON (Reuters) - Chancellor George Osborne said on Tuesday he would freeze a planned rise in fuel duty this year to help reduce costs for businesses and families, yet another U-turn by a Conservative-led government struggling in opinion polls.
The Conservative-Liberal Democrat administration will be hoping the move helps it win back some favour after a poorly received March budget triggered a fierce backlash over unpopular tax rises, several of which were subsequently reversed.
The government has faced growing pressure to do more to cushion families and business from the effects of a return to recession this year and a prolonged period of high inflation.
"We will now stop any rise in fuel duty this August and freeze it for the rest of the year," Osborne told parliament.
The rise, which will now take effect in January, would have added three pence to each litre of petrol this year.
Osborne's move, at a one-off cost to the Treasury of 550 million pounds ($860 million) funded by department under spending, follows campaigns by transport lobby groups and pressure from the opposition Labour party to scrap the rise.
"In our pre-budget survey, freezing fuel duty was at the top of our members' wish-lists for improving the UK's competitiveness, so this is welcome news," said Simon Walker, director-general of the Institute of Directors.
In March, the government introduced a "fair fuel stabiliser", funded by taxes from the oil and gas industry, under which fuel duty would not rise beyond the rate of retail price inflation as long as oil prices remained above $75 a barrel.
Crude oil prices rose above $92 a barrel on Tuesday due to the prospect of a decline in U.S. stockpiles and rising tension over Syria.
According to the AA motoring organisation's June report, unleaded petrol prices had fallen by 4.6 pence per litre to 133.8 pence since May, the second successive monthly fall.
That data may raise questions over why the government chose to announce the freeze this week, especially as inflation is expected to fall this year.
Treasury officials said it was Osborne's last chance to announce it before parliament goes into recess for the summer.
"This is the fastest U-turn in history," said Labour's finance spokesman Ed Balls. "Labour called for this help for families and businesses this morning and I welcome the fact the Chancellor (Osborne) backed down this afternoon."
The freeze has been part of high-level cabinet discussions since late May and, along with past freezes, according to Treasury calculations, adds up to 159 pounds in savings for families and 4,500 pounds for hauliers over the past two years.
Barclays, in response to Osborne's move, said it would reduce its inflation forecast from August onwards by 0.1 percentage points, and predicts inflation will fall below the Bank of England's 2 percent target as soon as September, almost a year earlier than the BoE forecast last month.
Editing by Louise Ireland