Experts are warning that energy bills for millions of households in the UK could increase significantly in July, potentially rising by £160 to £1,800 per year due to the ongoing conflict in the Middle East. Cornwall Insight, an industry specialist, has forecasted that Ofgem, the regulator, may need to raise its price cap by 10% to account for the soaring wholesale energy costs.
The current price cap, set to decrease from £1,758 to £1,641 annually for a typical household starting April 1, represents a 7% reduction of £117. However, the actual amount households pay depends on their individual gas and electricity consumption.
One of the main reasons for the upcoming decrease in the price cap is a £150 saving announced in the recent Budget by Chancellor Rachel Reeves. Any potential increase driven by the Middle East conflict could negate this benefit.
Cornwall Insight has highlighted that the expected price hike during Ofgem’s next review is a reflection of the global surge in gas markets, with the UK being particularly vulnerable as a net importer.
The impact of rising prices extends beyond gas bills to electricity bills due to the UK’s reliance on gas for determining power costs. While caution is advised, as Ofgem is in the early stages of setting 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, emphasized the importance of monitoring energy market trends over the upcoming months to better understand the potential impact on household bills. He also stressed the need for increased investment in renewable energy sources to reduce the reliance on volatile global gas markets and mitigate future price fluctuations.
Responding to the speculation, a government spokesperson cautioned against using short-term wholesale price fluctuations to predict long-term trends, highlighting that the price cap remains fixed until the end of June with expected reductions in household energy bills during this period. The spokesperson emphasized the importance of transitioning away from fossil fuel dependence to shield against price volatility in the future.