Household energy prices in the UK are set to rise sharply in July, marking the first time the impact of the Iran war and subsequent global gas price increases will directly affect consumer bills. Regulator Ofgem is scheduled to publish the details of its new energy price cap on Wednesday, which will impact millions of households on variable tariffs across England, Scotland, and Wales.
Analysts are predicting a significant increase of 13% on the current price cap. This forecast suggests that a household with typical gas and electricity consumption could see their annual energy bill climb by £209, reaching a total of £1,850. This projected rise follows a period where domestic energy bills had actually fallen by 7% between April and July, a reduction attributed to a government-initiated shake-up in charges. Notably, this earlier change was announced shortly before the outbreak of the conflict in Iran.
However, the upcoming price cap, effective from July to September, will now incorporate the 25% surge in global gas prices. This escalation is largely attributed to the ongoing conflict and its impact on critical shipping routes, specifically mentioning the effective closure of the Strait of Hormuz. The wholesale price of energy, which suppliers pay, constitutes approximately 40% of a household's total gas and electricity expenditure. This means that fluctuations in the global market have a substantial direct effect on consumer costs.
Looking ahead, some energy suppliers have indicated that prices could escalate further into the autumn and winter months. In response to these potential increases, the government has stated that it is actively developing plans to offer targeted financial support to those most vulnerable. This assistance is intended to mitigate the impact of rising bills, particularly as energy consumption typically increases during the colder winter period.
It is important to note that a typical household is already facing an annual cost increase of approximately £600 compared to the period before the significant price shocks experienced in 2022-23. The energy price cap currently protects around 19 million households in England, Wales, and Scotland, though regulations and billing structures differ in Northern Ireland. The cap limits the maximum charge per unit of gas and electricity for customers on variable tariffs. Those on fixed tariffs are not immediately affected, as their rates are locked until their contract ends.
Ofgem determines the price cap by calculating the annual bill for a "typical household." This calculation is based on specific usage estimates: 11,500 kWh of gas and 2,700 kWh of electricity per year. Ofgem is currently reviewing these "typical" usage figures, considering that many households have reduced their consumption due to high prices in recent years and improvements in energy efficiency. While this review might adjust the baseline, it is unlikely to alter the fundamental reality that consumers will face higher costs per unit of energy.
Forecasts from the energy consultancy Cornwall Insight illustrate the potential impact. Under current usage estimates, the typical annual bill from July is projected to be £1,850, an increase of £209. If new, potentially lower, usage estimates are adopted, the typical bill could be £1,667. For context, the current cap, using similar estimates, stands at £1,490, indicating a substantial rise regardless of the precise usage adjustment. Ofgem has previously revised these typical domestic consumption values in 2019 and 2023.
Energy UK, representing the suppliers, has acknowledged that energy bills remain unaffordable for a significant number of people. However, the organization highlighted that companies are providing support to struggling customers through repayment plans and temporary bill payment breaks. In the face of rising costs, experts advise households to continue implementing energy-saving measures. Habits adopted during the summer, such as reducing radiator use, blocking draughts, and minimizing heating in certain rooms, can help mitigate the financial impact as prices climb.
