Energy bills could see a significant increase for millions of UK households in July, potentially rising by £160 to £1,800 per year due to the ongoing conflict in the Middle East, experts have predicted.
Industry analysts at Cornwall Insight anticipate that regulatory body Ofgem may need to raise its price cap by 10% to account for the soaring wholesale energy costs.
The current price cap, which is set to decrease from £1,758 to £1,641 annually for the typical household starting April 1, is expected to experience a 7% reduction of £117. However, actual costs will vary depending on individual energy consumption levels.
The main driver behind the upcoming price drop is a £150 saving introduced by Chancellor Rachel Reeves in the latest Budget announcement. Any potential surge in the price cap triggered by the Middle East crisis would nullify these savings.
Cornwall Insight pointed out that the projected increase in the price cap upon Ofgem’s next review reflects the overall uptrend in global gas markets, with the UK heavily reliant on gas imports.
Rising prices will not only affect gas bills but also impact electricity costs, given the UK’s dependency on gas for determining power prices.
While expressing concern, Cornwall Insight highlighted that Ofgem is just beginning the process of setting the July price cap, which will be based on average wholesale prices over a three-month period.
Dr. Craig Lowrey, principal consultant at Cornwall Insight, emphasized the significance of wholesale markets in influencing energy bills and emphasized the need for increased domestic renewable energy generation to shield households from future price fluctuations.
In response to the predictions, a government spokesperson cautioned against relying too heavily on short-term price fluctuations to forecast future energy costs, affirming that the price cap remains fixed until the end of June with reduced bills for households during this period due to government interventions.
The spokesperson underscored the importance of transitioning away from fossil fuel markets to avoid the volatility associated with price spikes in the future.