Experts are warning that energy bills for millions of UK households could see a significant increase of up to £1,800 per year in July due to the ongoing conflict in the Middle East. Cornwall Insight, a leading industry specialist, anticipates that regulator Ofgem may need to raise its price cap by 10% to account for the soaring wholesale costs.
The current price cap, which is set to decrease from £1,758 to £1,641 annually for the typical household starting April 1, is expected to face upward pressure if wholesale prices continue to rise. The recent drop in the price cap was driven by a £150 reduction announced in the Budget by Chancellor Rachel Reeves, but any increase linked to the Middle East crisis could negate these savings.
Cornwall Insight highlights the global surge in gas markets as the main driver behind the projected price hike when Ofgem conducts its next review. The UK’s reliance on gas imports makes it particularly susceptible to price fluctuations in the international market, impacting not only gas bills but also electricity costs.
While cautioning that Ofgem has just begun its assessment for the July price cap, experts emphasize that the final decision will be based on average wholesale prices over a three-month period. Dr. Craig Lowrey, principal consultant at Cornwall Insight, stresses the importance of reducing the UK’s dependence on global gas markets to shield households from future price shocks.
In response to the speculations, a government spokesperson downplayed the forecasts, stating that short-term wholesale price fluctuations may not accurately predict future trends. The spokesperson reiterated that the price cap remains fixed until the end of June, with households benefitting from reduced energy bills during this period due to government interventions.
The official emphasized the need to transition away from fossil fuel markets to safeguard against price volatility, advocating for increased investment in renewable energy sources as a more stable long-term solution.