Energy bills for many households in the UK are at risk of increasing by £160 to £1,800 annually from July due to the ongoing conflict in the Middle East, as projected by experts. Cornwall Insight, a specialist in the industry, anticipates that Ofgem, the regulator, may have to raise its price cap by 10% due to the sharp rise in wholesale costs.
Following a reduction from £1,758 to £1,641 per year for an average household starting April 1, representing a 7% decrease or £117, the price cap could reverse course with the potential surge attributed to the Middle East turmoil. The actual amount paid by households depends on their gas and electricity consumption levels.
The main driver behind the anticipated decrease in the coming month is a £150 reduction announced by Chancellor Rachel Reeves in the recent Budget. Any increase linked to the Middle East crisis could nullify this benefit.
Cornwall Insight highlighted the expected increase during Ofgem’s next price cap review, citing the significant surge in global gas markets, with the UK being 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 prices.
While caution is advised since Ofgem is still in the early stages of setting the July price cap, the final decision will be based on the average wholesale prices over a three-month period. Dr. Craig Lowrey, principal consultant at Cornwall Insight, emphasized the influence of wholesale markets on bills and underscored the vulnerability of UK households to international market fluctuations.
Noting the need for greater renewable energy generation domestically to reduce dependence on volatile global gas markets, Dr. Lowrey highlighted the importance of shielding households from future price shocks. The government responded, calling the predictions speculative and emphasizing the temporary nature of wholesale price changes in forecasting future trends.
The government spokesperson emphasized the stability of the price cap until the end of June, ensuring a reduction in energy bills for households during this period. To mitigate price spikes, transitioning away from fossil fuel markets was emphasized as a crucial step to secure energy pricing stability.