British Gas, EDF, EON and OVO customers will pay £1,723 a year for energy from October 1, following Ofgem's new price cap announcement. The cap, which applies to households on standard variable tariffs, rises by 4% from that date.
What the new price cap means
Ofgem announced the increase on August 26, setting the cap at £1,723 a year for a dual fuel household with typical use. The cap sets maximum unit rates for gas and electricity for those not on a fixed deal.
Electricity unit rates will rise from 26.11p to 26.32p per unit, while the daily standing charge for electricity drops from 57.19p to 54.83p. Gas prices increase from 7.33p to 7.9p per unit, with the daily standing charge rising from 29.04p to 29.68p.
Martin Lewis urges caution
Money expert Martin Lewis warned that the headline figure could mislead consumers. He told his X followers: "Ofgem says someone on what it calculates to be 'typical use' would see their equivalent annual cost rise by £60. Yet that's a bit misleading [as] the cap only lasts three months and changes again on 1 January and sadly it's currently predicted to rise substantially again then, though that's a bit of crystal ball gazing."
Lewis stressed: "IMPORTANT: The price cap only applies to standard tariffs… It dictates the maximum unit rate and standing charges firms can levy on their standard variable tariffs (which around 60% of homes are)."
Further increases expected in January
Prices are set to rise again in January, driven by the US-Iran war's impact on wholesale rates. Lewis added: "The vast majority of the rise is the spike in wholesale rates caused by the Middle East conflict. The October cap is set on an average of wholesale prices from 19 May to 18 August, and they were high throughout the entire period. Worse, they've kept climbing since, which is why the prediction for January is for it to get even worse."
Fixed deals often undercut the cap, with the best current market deal from Fuse priced £173 less than the October cap. The cap remains a backstop for households that don't switch deals.
