Household energy prices fell by 7 per cent on Wednesday, but are forecast to increase by 18 per cent from July.
Household energy prices fell by 7 per cent on Wednesday, but are forecast to increase by 18 per cent from July.(Image: Jacob King/PA Wire)
Household energy bills could increase by £288 a year in July as soaring wholesale costs caused by the conflict in the Middle East are set to push up Ofgem’s price cap, according to the latest forecasts.
Cornwall Insight said its prediction for the watchdog’s price cap from July to September now stands at £1,929 for a typical dual fuel household – an increase of £288 or 18 per cent on April’s cap.
This marks a slight fall from its forecast earlier this month, which had seen the energy price cap surging to £1,973 in July. It said this was caused by a “partial steadying in wholesale markets after a pause in energy infrastructure strikes and signals of a potential ceasefire in the Middle East conflict”.
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Cornwall Insight warned a rise in the cap in July was “effectively unavoidable” with rocketing wholesale prices over March now locked into the calculation and little chance that they will fall below pre-war levels in the coming weeks.
The price most households pay for energy under the cap fell by 7 per cent from April 1, or £117 a year to £1,641, driven by the UK Government’s promise to cut bills by an average of £150 by removing green subsidies.
But the prospect of a big jump in gas and electricity costs when the cap is next updated in July has prompted the Government to say it will look at further targeted support as part of contingency planning efforts.
Ofgem will confirm its next price cap level by May 27.
Craig Lowrey, principal consultant at Cornwall Insight, said: “A rise in July is pretty much unavoidable, but how high prices go remains to be seen.
“There is some relief in the timing, summer is when energy demand is at its lowest, which should soften the impact on household energy expenditure.
“If higher wholesale prices continue, it will be the effects on the October cap that have the most impact, and that is when the question of government support for households is likely to be revisited.”
In the meantime, consumer groups have urged households to send in meter readings to ensure their energy usage is billed at the lowest possible rate, and investigate fixed rate deals if they remain on their firm’s standard variable rate.
A spokesman for Energy UK, which represents firms, said: “Suppliers are required to set direct debits as accurately as possible based on the best and most current information available.
“So – as well as factors like current balance, payment record and previous energy usage – this will also include the latest projection of energy costs over the coming months.
“Suppliers regularly review direct debt levels so any current assessment for price cap customers would likely take into account that bills look set to go up again in July. Customers on fixed deals however will not see any increase until their current deal comes to an end.”
Simon Francis, coordinator of the End Fuel Poverty Coalition, said: “The fall in bills from April 1 offers brief relief for households, but the respite will be short-lived.
“Given the ongoing profits made by the energy industry, households deserve more than a temporary reprieve before prices rise again.
“For the millions of households already in energy debt to their suppliers, this is a real concern and risks pushing more people into crisis.
“The Government must use the window between now and July to act. That means targeted support for those hit first and hardest, including households off the gas grid and those on heat networks, faster action on energy debt, and preparations to bring costs down if prices deteriorate further.”
Wholesale energy costs are not seen coming back down to pre-war levels until Iran releases its stranglehold on the Strait of Hormuz, through which a fifth of the world’s oil and seaborne gas is carried.
Its blockage and the disruption to supply, combined with attacks and stoppages at energy infrastructure across the Middle East, has sent gas prices soaring and the cost of crude surging past 100 US dollars a barrel since the conflict started on February 28.
Minister for energy consumers, Martin McCluskey, said: “Tackling the affordability crisis is our number one priority and I know many families will be thinking about how events in the Middle East might impact the cost of living at home.
“We will continue to fight people’s corner through this crisis and, as the Energy Secretary has said, if it’s necessary to intervene, we will.”
The Conservatives have called on the UK Government to take urgent action to support all households and businesses by cutting VAT, taxes and levies off energy bills.
Shadow energy secretary Claire Coutinho said: “The Government must adopt the Conservatives’ cheap power plan to cut bills by £200 immediately by taking VAT, taxes and levies off energy bills without costing taxpayers a penny.
“We would cut bills for everyone rather than taxing working people to fund yet another bailout for people on benefits.”
