Energy bills are anticipated to increase by £288 in July due to the ongoing conflict in the Middle East, households have been cautioned. Industry analysts at Cornwall Insight have raised their latest projection for Ofgem’s price cap by 18% to £1,929 annually. This surge is a result of soaring wholesale energy costs driven by tensions between the US, Israel, and Iran. Cornwall Insight has been continuously updating its forecast given the potential impact on bills.
Ofgem’s price cap regulates the unit rate paid by millions of households on standard variable tariffs, with the total bill varying based on individual usage. Despite an expected 7% decrease to an average of £1,641 per year starting tomorrow, recent developments in the Middle East and the doubling of wholesale gas prices suggest a probable increase in the cap for July.
The potential escalation of financial strain on families struggling with living costs has heightened calls for targeted government assistance. Cornwall Insight’s revised forecast of £1,929 annually is slightly lower than the previous estimate of £1,973, reflecting temporary stability in wholesale markets following a pause in energy infrastructure attacks and hopes for a ceasefire in the conflict.
Dr. Craig Lowrey, Principal Consultant at Cornwall Insight, noted the unprecedented volatility in energy markets since the conflict began. He emphasized the inevitability of a July price hike due to infrastructure damage and supply disruptions in the region. The timing of the increase in the summer, when energy demand is lower, may mitigate the impact on household expenses. However, the effects on the October cap will likely depend on ongoing wholesale price trends.
While Ofgem adjusts its price cap quarterly based on wholesale energy costs and additional expenses, fluctuations in the cap over the next year are expected, particularly influenced by wholesale market dynamics. Minister for Energy Consumers, Martin McCluskey, highlighted the government’s efforts to reduce energy costs for households and emphasized readiness to intervene further if needed to support families amid the crisis.