Energy price cap to jump 13 per cent this summer
UK households will be hit by a sharp £200 rise in energy bills next month, leaving Brits bracing for a painful winter of higher bills off the back of the Iran war.
From 1 July to 30 September the annual energy price cap will be £1,862 per year, up from the current cap of £1,641, according to the latest update from energy watchdog Ofgem.
This represents a 13 per cent jump from the prior period for dual fuel households across England, Scotland and Wales.
The rise also comes in above forecasts by Cornwall Insight, which had projected a £1,850 increase last week in its final prediction.
The analyst’s forecast has changed over the course of the conflict between the US and Iran, hovering up as high as £1,973 as of 20 March, before dipping to £1,929, following the fragile ceasefire.
Tim Jarvis, Ofgem chief executive, said: “Today’s price change reflects continued volatility in global energy markets. This means higher wholesale gas prices, driven by ongoing conflict in the Middle East, is impacting the price we pay for energy.
“We understand many will be concerned about rising prices. While energy use typically falls over the summer months, there are still practical steps households can take to manage costs, including exploring fixed tariffs or changing their payment method.”
Worrying winter
The cap sets the maximum price per unit of gas and electricity used, meaning households only pay for the amount of energy they use.
But while households will be largely shielded over the warm summer months, concerns are growing over a potential painful hit when the cap is once again reviewed in October and energy demand grows as temperatures drop.
Cornwall Insight’s forecasts suggest the cap in October will be at a similar level to July, even if the Middle East conflict comes to and end soon, after physical damage to infrastructure from airstrikes and the lingering effect of disrupted oil and gas supplies are likely to continue to ripple into the UK market.
Energy costs have been sent soaring since the start of the Iran war, following the closure of the Strait of Hormuz which clogged a fifth of the world’s oil supply and has driven a surge in wholesale gas prices.
UK households have yet to truly feel the impact, as the price cap is reviewed on a quarterly basis, and April saw a seven per cent drop following government measures to reduce bills.
This included moving 75 per cent of the cost of the UK’s renewables obligation from household bills on to general taxation, and scrapping the energy company obligation scheme.
Call for action
Now industry figures are urging the government to go further to support vulnerable households and ultimately bolster the UK’s energy security.
But chancellor Rachel Reeves stopped short of any immediate energy measures in her cost-of-living plans last week.
Reeves told MPs: “We stand ready to act if market conditions worsen significantly later this year and I have been leading cross-Government contingency work on design of potential future targeted and temporary support for businesses.”
She said that she was changing the way energy companies were taxed on their “foreign branches”, ensuring the government can get receipts from UK trading activity profits.
Ned Hammond, Energy UK’s deputy director of policy, said: “A rise of this scale will already be a concern for millions of customers but such worries will be magnified if bills remain at this level, or higher, over the winter months.
“It’s another unwelcome reminder… of how our country’s high dependence on gas leaves us exposed to price spikes we can do nothing about resulting from conflicts thousands of miles away.
“It underlines why the only route to stable and predictable bills, and ensuring energy security in an unstable world, is to continue growing our own sources of clean power.”
Monitoring the situation
Claire Maio, global lead partner at KPMG UK, also questioned what the government’s targeted support will look like in October, in the face of “suppliers still tackling mounting energy debt” and the need for creating “longer-term measures” for energy efficiency.
Energy secretary Ed Miliband acknowledged the rise and confirmed the government will “continue to monitor the situation” ahead of the winter months and his push towards moving the UK to greater reliance on homegrown renewable energy.
He said: “The rise in the price cap because of a war we did not choose is deeply unwelcome news for households across the country. We know people were under pressure before this crisis, and that’s why easing that burden is our number one priority.
“To help people facing higher costs, the chancellor acted last week to freeze fuel duty and made bus travel free for children across England in August. We have taken £150 average costs off energy bills for the years ahead.
“We will continue to monitor the situation ahead of the winter and plan for all contingencies. In the immediate term it is essential to de-escalate this conflict to bring oil and gas prices down and as Britain faces the second fossil fuel crisis of this decade, we must learn the right lessons. “