Annual UK energy bills have been forecast to hit £3,729 ($4,535) from next April, with volatility in the global gas and electricity market triggered by Russia's invasion of Ukraine pushing prices to record highs.
British energy regulator Ofgem has confirmed that the energy price cap will be updated quarterly, rather than every six months, as it warned that customers face a “very challenging winter ahead”. Higher prices are expected to go into two-phase set of increases this winter in October and then in January as the cap is adjusted every three months.
It said the change would go “some way to provide the stability needed in the energy market” and that it “isn't anyone’s interests for more suppliers to fail and exit the market.”
With the UK battling a mounting cost of living crisis, changes to the price cap come as household energy bills are likely to remain at more than two-and-a-half times their pre-crisis levels until at least 2024, according to the latest predictions.
Ofgem said paying a rate that is up to six months out of date in the current volatile market was no longer sustainable and could mean either consumers paying too much for months if wholesale prices dropped or suppliers left unable to supply gas if global prices have risen.
UK energy consultancy Cornwall Insight has forecast bills will hit £3,359 per year from October for the average household, and not fall below that level until at least the end of next year.
The price cap on energy bills, which regulates what 24 million British households pay, will hit £3,616 from January and rise further to £3,729 from April, it said.
It will begin to fall after that, but only slowly, reaching £3,569 from July, before hitting £3,470 for the last three months of 2023.
As expected, Ofgem warned that as a result of the market conditions, the price cap would have to increase later this month to reflect increased costs.
However, it said that the changes would mean that any fall in wholesale prices would be passed on in full to customers and more quickly with the quarterly price cap.
“I know this situation is deeply worrying for many people,” said Ofgem chief executive Jonathan Brearley.
“The trade-offs we need to make on behalf of consumers are extremely difficult and there are simply no easy answers right now. Today’s changes ensure the price cap does its job [by adapting to the volatility and] making sure customers are only paying the real cost of their energy.”
Stark inflation warning
Torsten Bell, chief executive at living standards think tank the Resolution Foundation, said the peak of inflation will now be both higher and later than previously expected, adding that policymakers need to be prepared.
“We thought [inflation] might be peaking at around 10 per cent in the middle of the autumn, but we’re now heading towards over 10 per cent and that peak won’t come until the early part of 2023,” he told the BBC on Thursday.
A recent Resolution Foundation report suggested inflation could rise to 15 per cent, and Mr Bell said that scenario remained “plausible”.
“If we look at what’s happening to manufacturers’ input costs right now, they’re rising at huge record levels — 24 per cent. Service producers are seeing inflation of their input costs of around 5 per cent and, in the end, this is going to be passed through to consumers in some form or another.
“So I think we should all have a lot of humility about being absolutely certain what’s going to happen to inflation, but policymakers need to prepare for much higher inflation than we were expecting even a few months ago, and that’s despite some good news.
“If you look at some global commodity prices, they’re coming down from the peaks we saw earlier in this year — that’s true — if you look at what’s happening to lumber, if you look at what’s happening to lots of metals. So there is good news out there, but that’s all being wiped out by the very very bad news that’s coming from global energy markets, particularly gas.”