Relief for households as energy price cap drop should take average bills below £2,000

Millions of households are set for relief from painfully high energy prices when typical bills fall below £2,000 this autumn.

Industry analysis suggests annual gas and electricity costs for average homes will drop to £1,925 from October under regulator Ofgem’s energy price cap, which will be announced next Friday.

It will be the latest sign of cheer for consumers after a prolonged period in which rising prices across the economy have squeezed household finances.

Inflation is now declining, and this week fell to 6.8 per cent – its lowest level since Russia invaded Ukraine in February last year. 

And wage growth is accelerating at the fastest pace on record, meaning workers are finally enjoying a welcome – if so far small – increase in their spending power.

A Treasury source said yesterday: ‘This is a positive step that will help millions of households.

‘We spent billions to protect families when prices rose over the winter, covering nearly half a typical household’s energy bill. We’re now seeing costs fall even further with the drop in wholesale prices.’

> Energy price cap fall will take £150 off bills –  but could they then rise again?

But with interest rates predicted to hit 6 per cent by the end of the year, borrowers could still see their monthly mortgage payments rise.

If the Ofgem price cap does fall next week, as predicted by independent energy research firm Cornwall Insight, it will be the first time typical bills have dipped below £2,000 since last summer.

It comes at a time when Britons will be worried about the cost of turning up the heating in the colder months of autumn and winter. Yet prices will still be much higher than before the war in Ukraine, when bills were just above £1,000. 

Energy prices spiked after Vladimir Putin’s tanks rolled into Ukraine last year, driving up the wholesale price of gas on global markets

The cap affects those on standard variable tariffs – which amounts to around 29million households according to the regulator’s figures earlier this year. 

Craig Lowrey, principal consultant at Cornwall Insight, said: ‘While a small decrease in October’s bills is to be welcomed, we once again see energy forecasts far above pre-crisis levels.’

Energy prices spiked after Vladimir Putin’s tanks rolled into Ukraine last year, driving up the wholesale price of gas on global markets. That pushed up the energy price cap set by Ofgem.

The cap is designed to ensure suppliers pass on lower prices when they fall, but allow them to put up prices when wholesale costs rise.

Typical bills rose to £1,971 in summer 2022 and would have climbed further if not for a government intervention which capped household bills from last autumn.

It meant that even as the Ofgem price cap soared past £4,000 at the start of this year, typical bills did not climb past £2,500, with the difference paid for by the Treasury. Falling wholesale prices saw the Ofgem cap come down to £2,074 from July, meaning government subsidies were no longer necessary.

Cornwall Insight’s prediction for the price cap from October comes after Ofgem’s ‘observation window’ – the period during which it monitored wholesale prices – closed earlier this week. Its last prediction at a similar stage in the process was just £21 out from the final figure for July.

The consultancy predicted that for the October figure to be published next week, typical bills will look even better when taking into account lower estimates of household energy usage. Based on that reduced domestic consumption, they will fall to £1,823.

But Cornwall Insight expects energy bills to climb again at the beginning of next year due to a recent rise in wholesale gas prices.