Households face a winter squeeze from energy bills as regulator Ofgem raised the price cap to a three-year high.
The energy price cap will rise by 4% from October 1 for a typical household in England, Scotland and Wales. Ofgem said the price cap will rise by £60 per year – or £5 per month – to £1,723 for the average household using both electricity and gas if this level was sustained for a year.
It comes after the Middle East conflict affected wholesale prices.
The ongoing heatwaves across Europe have added further pressure by increasing gas demand for power generation to meet air conditioning and cooling demand.
Experts at Cornwall Insight predicted last week that a typical household will face an annual bill of £1,729, up from £1,663, based on Ofgem’s updated definition of a typical consumer, which came into effect from July to reflect falling household energy use. It said this would be the equivalent of £1,941 per year based on its previous calculations, up from £1,862 currently.
It marks the highest average bill since July 2023.
The Government “will keep looking at what more we can do to protect families from unaffordable bills”, the Energy Secretary has said.
Reacting to the energy price cap rise, Miatta Fahnbulleh said: “Families will be understandably concerned about the cost of energy bills this winter, which is being driven up by the Iran war.
“Energy is an everyday essential and it needs to be affordable for everyone, which is why we have cut VAT on electricity bills from October, to give families some breathing space.
“This has limited the rise in the price cap and follows the £150 in costs we removed from bills earlier this year, and we will keep looking at what more we can do to protect families from unaffordable bills.”
Neil Kenward, Ofgem’s director general for markets, said: “High international gas prices are continuing to drive energy costs in the UK.
“We welcome the Government’s intervention to remove VAT from electricity bills, without which customers would have faced even higher costs this winter.
“Savings are available by choosing a fixed tariff, which are available at £100 or more below the October price cap, and many suppliers offer tariffs with cheaper electricity to smart meter customers for electricity consumed out of peak times.
“It’s also worth considering different payment methods, with prepayment customers paying the lowest price cap rates, and could save consumers an average of about £45 compared to direct debit.”
What is the energy price cap?
The energy price cap was introduced by the Government in January 2019 and sets a maximum price that energy suppliers can charge consumers in England, Scotland and Wales for each kilowatt hour (kWh) of energy they use.
It aims to ensure that prices for customers on default energy tariffs are a fair reflection of the cost paid by suppliers for wholesale energy, and that the profit firms make is capped.
Ofgem sets its cap every three months as the average amount paid by the typical household.
