UK household energy price cap to fall by £1,200 in July, analysts forecast

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The UK’s household energy price cap is expected to fall by more than £1,200 in July following a sharp drop in wholesale gas and electricity prices, a move that will bring relief to the government as it tackles the crisis. cost of living.

Investment bank Investec’s final estimate for the July price cap is £2,044, while the level is expected to fall to £1,933 in October.

Consultancy firm Cornwall Insight, meanwhile, expects the cap to drop to £2,054 in July and then £1,976 in October.

These compare with the current price cap of £3,280 and would put bills well below the £3,000 threshold from July for general government support.

The actual level of the cap will be announced on Thursday by Ofgem, the energy regulator.

However, it is now too late for wholesale price fluctuations to affect the July cap, meaning estimates for that period are likely to be close to the mark.

Investec’s estimates on Friday are slightly lower than earlier estimates from May 3, by £2,051 in July and £2,080 in October.

The government occurred last year to subsidize all energy bills as wholesale prices soared up to elevenfold when Russia cut gas supplies to Europe following its invasion of Ukraine.

However, the price ceiling is still set to be nearly 60% higher than pre-energy crisis levels of below £1,300, meaning many households will be left in a bind.

“Consumer prices will be at levels not seen since last summer, but still challenging for many,” Investec said.

The cap caps the amount energy suppliers can charge customers on default rates, which accounted for more than 90% of British households in March.

This is a cap on the unit rate of gas and electricity: the annual level shown reflects the expectations for typical households under the cap.

It fluctuated between £1,104 and £1,277 between 2018, when it was introduced, and 2022, before leaping to £3,549 in October 2022 and £4,279 in January 2023 following wholesale price increases.

UK wholesale gas prices have nearly peaked 600p for therm in August 2022, compared to the long-term average of less than 50 pence per term.

Under its Energy Price Guarantee, the government has stepped in to cap typical annual bills at £2,500 from October 2022, paying suppliers the difference between that level and the cap. The threshold for support is set to rise to £3,000 on 1 July.

The total cost to the taxpayer of the price guarantee scheme, which runs until next March, was estimated at £29.4 billion in March.

Wholesale prices have fallen after a relatively mild winter and thanks to efforts in Europe to save energy and use alternative sources.

The price of gas for the third quarter of 2023 traded at around 75 pence per therm this week.

Investec has forecast that the wholesale energy component in bills will fall from £2,223 in April to £1,030 in July.

On Thursday, gas prices in Europe fell to their lowest level since June 2021, falling below 30 euros per megawatt hour, which is equivalent to about 78 pence per therm.