Energy bills for millions of households in the UK are at risk of increasing significantly in July due to the ongoing conflict in the Middle East, according to experts. Cornwall Insight, a specialist in the industry, predicts that Ofgem, the regulator, may need to raise its price cap by 10% to offset the soaring wholesale costs.
The current price cap, which is set to decrease from £1,758 to £1,641 annually for an average household from April 1, will see a reduction of 7%, equivalent to £117. However, the actual amount households pay depends on their individual gas and electricity consumption.
The expected increase in the price cap by Ofgem is a reflection of the sharp rise in global gas markets, with the UK being particularly vulnerable as a net importer. This surge not only impacts gas bills but also influences electricity costs due to the country’s dependence on gas for determining power prices.
While the window for Ofgem to decide on the July price cap has just opened, caution is advised. The final cap will be based on average wholesale prices over a three-month period. Dr. Craig Lowrey, a principal consultant at Cornwall Insight, highlighted the importance of monitoring energy market developments over the next few months to assess the actual impact on household bills.
The government has expressed skepticism about the speculation surrounding the potential price hike, emphasizing that relying on short-term wholesale price fluctuations for long-term predictions is unreliable. They reaffirmed that the price cap remains fixed until the end of June, with households benefiting from reduced energy bills during this period due to government measures.
To shield households from future price shocks, experts advocate for increased investment in domestic renewable energy sources to reduce the UK’s reliance on volatile global gas markets.