Energy bills could drop below £2,500 per year, saving the government billions in support packages
Energy bills could fall under £2,500 per year in the second half of this year, potentially saving the Government billions of pounds in the cost of support packages for households.
Investec has downgraded its predictions for the energy price cap in 2023.
It now expects the cap to drop from its current rate of £4,279 per year to £3,317 per year in April, before sliding to £2,478 per year in July before climbing slightly to £2,546 per year in October.
The rate of the price cap is also below the threshold of the Energy Price Guarantee in the second half of the year, which subsidises rates at £3,000 per year from April for the proceeding 12 months .
The latest dip in the price cap is expected to save the Government around £700m, according to Investec, which has dropped the cost of the Energy Price Guarantee in the second half of 2023 from £3bn to £2.3bn.
It is also well below the £18bn forecast last year by the Office for Budget Responsibility, meaning billions have been cut from predictions since last Autumn.
Energy bills to ease as gas prices plummet
The latest predictions reflect plummeting gas prices, with markets easing following Europe’s successful scramble for supplies and warmer than expected winter weather.
Gas is currently trading at £1.67 per therm on the spot market.
This is still historically high, with gas trading at around 45p per therm prior to the energy crisis and Russia’s invasion of Ukraine – but is well below the £8 per therm peaks recorded last summer.
These recent falls in prices are likely to have a delayed effect on household bills with suppliers typically hedging supplies months in advance rather than buying on the spot market.
Investec’s forecasts follow similarly optimistic predictions from Cornwall Insight – which calculates the price cap will fall to £2,800 over the winter period.
This is in contrast to previous forecasts in October by Cornwall Insight, which predicted energy bills could rise to over £4,000 per year in April 2023.
Robert Buckley, head of relationship development at Morning Wire, expects energy bills for businesses to come down more quickly than households, because companies are not eligible for the price cap and instead rely on short-to-medium term contracts.
He told Morning Wire: “These lower spot prices will come through quicker for businesses. It may be some businesses which are buying on very short term energy contracts which see quite a lot of benefit through to the end of the winter.”