Households across the UK are being alerted to a significant rise in energy costs early next year. Ofgem, the energy regulator, has announced that gas and electricity prices will increase by 4% from October under the updated price cap. This change affects around 22 million households reliant on default tariffs.
The new price cap for a typical household is set at £1,723 annually for gas and electricity, up from £1,663 in the July to September period. Energy consultancy Cornwall Insight forecasts an additional increase of £149 per year in January, potentially raising the average annual bill to £1,872. This would mean a total rise of £209 between the two impending cap adjustments.
Ofgem emphasises that the energy price cap is designed to protect millions of households by limiting the maximum charges for energy supply, based on changes in supply costs and updated quarterly. Currently, the cap for a typical household paying by direct debit stands at £1,663. The upcoming October rise is anticipated to add approximately £60 per year (£5 per month), raising the cap to £1,723.
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It is important to note that around 35% of households are on fixed tariffs and will not be impacted by these increases. This group comprises roughly 11 million households.
Cornwall Insight highlights that wholesale energy prices account for over 40% of the cap. Recent volatility has been influenced by geopolitical tensions, notably the US-Iran conflict, alongside a summer heatwave across Europe, supply disruptions in Norway, and heightened demand from Asia. These factors have contributed to lower winter gas stock levels, particularly in Continental Europe.
The forecasted January price cap will be finalised in November, leaving open the possibility for changes based on market conditions.
Sabrina Hoque, an energy expert from Cornwall Insight, advises caution: “Experts expect the price cap to increase by a further 9% in January, marking the third consecutive rise in standard tariff rates. Households remaining on a standard variable tariff without switching to a fixed tariff risk facing higher heating costs this winter.”