Budget: Energy bills to drop £1,000 by July but will not fall below £2,000 by October
Cornwall Insight has unveiled its price cap predictions ahead of the Budget, raising expectations of a sharp fall in energy bills over the second half of the year.
It predicts the price cap will fall over £1,000 when it is next updated in July, and that bills will remain steady over winter.
The energy specialist is now forecasting that the cap will drop from £32,80 per year to £2,013 per year in July and slide further to £2,002 per year in October.
This is slightly higher than its estimates in January, when it predicted the cap would fall below the £2,000 threshold but still represents a marked decrease in energy bills.
The decline in prices reflects plummeting wholesale costs, which have already been observed on the spot market – with gas UK prices nosediving from over £8 per therm last summer to 110p per therm today.
With suppliers hedging gas supplies and contracting resources on long-term contracts, there is typically a delay in falling gas prices being reflected in energy bills – meaning prices remain ultra-high ahead of the Budget.
Despite the upcoming drop, energy bills will still be nearly double the price prior to the energy crisis.
For context, the £1,971 per year price cap unveiled for April 2022 was at the time an industry record – which has since been doubled with the January 2023 cap of £4,279 per year.
Chancellor Jeremy Hunt has confirmed the support package for households, the Energy Price Guarantee, will be sustained at current subsidy levels offering average energy users £2,500 per year energy bills for another three months.
Dr Craig Lowrey, principal consultant at Cornwall Insight said: “The announcement that the government will maintain the Energy Price Guarantee (EPG) at £2,500 has provided much-needed clarity for energy suppliers and no doubt relief for the many households who rely on the scheme to safeguard their finances from the volatile energy market.
“While the government’s decision will come at an estimated additional cost of £2.6bn for the three months to July, default tariff cap (price cap) predictions indicate that the EPG costs will be short-lived, as average bills are expected to drop well below £2,500 in the latter half of the year. It’s a small price to pay to protect already hard-hit households.”
Cornwall Insight predicts the total governmental cost of the EPG at £29.4bn – around two-fifths the price of the Covid furlough scheme.