Energy bills are forecast to drop by an average £166 a year in the summer, in a much-needed boost for millions of cash strapped households.
Industry experts Cornwall Insight is predicting that regulator Ofgem’s price cap will fall by nearly 9% in July, from the current £1,849 a year to £1,683. And there could be more good news, with it estimating that the cap will come down again – slightly – in October, and again next January.
Ofgem’s price cap sets the maximum amount suppliers can charge per unit of energy, and applies to the vast majority of households in the UK. It is reviewed four times a year, and changes – up or down – depending on what costs suppliers are facing, along with any other levies. The actual amount households pay is ultimately dependent on their individual energy use.
Cornwall Insight said its predicted fall in the cap was due to a recent decline in wholesale energy prices on the back of changes in the market, including above average temperatures. US President Donald Trump’s trade tariffs have also eased wholesale prices, but only because of fears that the levies will damage the global economy, which would reduce demand for energy.
Cornwall Insight warned that, while, a reduction would be welcome, the market for energy remained volatile. It added: “There are many moving parts, and with the July cap still a month away from being finalised, it is too early to say whether these reductions will hold.”
A rise in Ofgem’s price cap this month, along with a surge in water bills, was partly blamed by the International Monetary Fund this week as it predicted a spike in UK inflation this year. Any bigger-than-expected fall in gas and electricity prices later this year could put downward pressure on inflation and make it more likely the Bank of England will reduce interest rates, in a boost to borrowers.
Soaring energy bills have been compounded the cost of living crisis for many households. A reduction in July, though helpful, would also apply when families typically use less heating because of the better weather.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “While a fall in bills will always be welcomed by households, we mustn’t get ahead of ourselves. We have all seen markets go up as fast as they go down, and the very fact the market dropped so quickly shows how vulnerable it to geopolitical and market shifts.”
He went on: “It would be easy to conclude the fall in the market was due to the United States tariffs, but the reality is that the interactions within and across the energy market are complex – from energy storage requirements in Europe, to warmer weather, to global trade issues – and contribute to the volatility we have seen in recent weeks.
“There is unfortunately no guarantee that any fall in prices will be sustained, and there is always the risk of the market rebounding. The only real way to protect households from this constant cycle of instability and insecurity is to reduce our dependence on international wholesale markets. That means continuing to focus on growing low carbon energy generation here in Great Britain and building a more secure, more sustainable energy future.”
Elise Melvin, energy expert at the website Uswitch.com, said: “A summer-time fall in the price cap might sound like relief for under-pressure households – but this forecasted reduction is a drop in the ocean compared with the savings available by getting a fixed deal. For most households – if you haven’t switched in a year or more, you are probably on a standard tariff, and effectively throwing money out of the window.
“There are a number of fixed deals on the market cheaper than the predicted July rates. The average household on a standard tariff could save around £258 a year by switching compared with the current price cap, which also beats the latest July prediction.”
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