Energy bills for millions of households in the UK are at risk of increasing by £160 to £1,800 annually starting in July due to the ongoing conflict in the Middle East, as per experts’ predictions.
Cornwall Insight, a leading industry specialist, anticipates that regulatory body Ofgem may need to raise its price cap by 10% to offset the escalating wholesale energy costs.
From April 1, the price cap is set to decrease from £1,758 to £1,641 per year for the average household, marking a 7% reduction equivalent to £117. The actual amount households pay depends on their individual gas and electricity consumption levels.
The primary reason for the upcoming drop next month is a £150 reduction announced by Chancellor Rachel Reeves in the recent Budget announcement. However, any potential increase in the cap due to the Middle East conflict could nullify this reduction.
According to Cornwall Insight, the projected surge in the price cap during Ofgem’s next review is a reflection of the overall spike in global gas markets, with the UK being particularly vulnerable as a net gas importer.
The impact of price hikes extends beyond gas bills to electricity bills due to the UK’s heavy reliance on gas for determining power prices.
While caution is advised, as Ofgem’s decision on the July price cap is still pending, the final cap will be based on the average wholesale prices over a three-month period.
Dr. Craig Lowrey, principal consultant at Cornwall Insight, emphasized the significance of wholesale markets in determining energy bills, highlighting the continued exposure of UK households to international market fluctuations.
He also stressed the importance of boosting domestic renewable energy generation to reduce the nation’s dependence on volatile global gas markets and shield households from abrupt price surges.
A government spokesperson responded to the speculation, noting that relying on short-term wholesale price variations to predict future trends is unreliable. The current price cap remains fixed until the end of June, with household energy bills expected to decrease during this period due to government interventions.
The spokesperson further suggested that moving away from fossil fuel markets is crucial to insulate against unpredictable price spikes.