Millions of households in the UK are facing potential increases in their energy bills ranging from £160 to £1,800 per year starting in July due to the ongoing conflict in the Middle East, as projected by experts. Cornwall Insight, an industry specialist, anticipates that Ofgem, the regulator, may need to raise its price cap by 10% in response to escalating wholesale costs.
The current price cap, set to decrease from £1,758 to £1,641 annually for a typical household from April 1, represents a 7% reduction or a savings of £117. However, the actual amount households pay is dependent on their individual gas and electricity consumption.
A key factor contributing to the upcoming price adjustment is a £150 reduction introduced by Chancellor Rachel Reeves in the recent budget. Any potential increase driven by the Middle East crisis could nullify this benefit.
According to Cornwall Insight, the expected rise in the price cap during Ofgem’s upcoming review reflects the overall surge in global gas markets, with the UK being a net gas importer. This increase will not only impact gas bills but also electricity bills, given the country’s reliance on gas for determining power prices.
Although caution is advised as Ofgem has just begun the process of deciding the July price cap, the final decision will be based on average wholesale prices over a three-month period.
Dr. Craig Lowrey, principal consultant at Cornwall Insight, highlighted the significance of wholesale markets in influencing energy bills and emphasized the vulnerability of UK households to international market fluctuations. He stressed the importance of promoting domestic renewable energy generation to reduce dependence on volatile global gas markets and shield households from future price shocks.
In response to the speculation, a government spokesperson cautioned against relying on short-term wholesale price variations to predict future energy costs, emphasizing that the price cap remains fixed until the end of June, with expected reductions benefiting households during this period. The spokesperson urged a shift away from fossil fuel markets to mitigate the impact of price spikes on consumers.