Households could see their annual energy bills rise by nearly £300 in January, just as millions face higher gas and electricity costs from today. Ofgem's latest Energy Price Cap has come into force across Scotland, England and Wales, taking the typical annual bill for a household paying by Direct Debit for gas and electricity to £1,723.
The October increase adds around £60 over a year, or £5 a month, if prices remained at the same level. However, households are now being warned that a considerably larger increase could follow in just three months.
Cornwall Insight predicts the typical dual-fuel bill could rise by another £276 to £1,999 a year from January 1. That would represent a 16 per cent increase on the October cap and the biggest rise in four years.
Drivers behind the forecast rise
The forecast comes as colder temperatures mean many households will also start using more gas and electricity to heat their homes.
Cornwall Insight said the projected January increase is being driven by the escalating conflict in the Middle East, which has disrupted gas supplies to the UK and worldwide following the effective closure of the Strait of Hormuz.
European gas storage levels are also at their lowest September level for 15 years.
Craig Lowrey, principal consultant at Cornwall Insight, said: “These prices are going to hit households hard.
“January is already a difficult month for many, with cold weather and bank balances still recovering from Christmas, and now they face the biggest price cap rise we’ve seen in four years.
“At the moment, we can’t yet see an end to the volatility, and with gas stocks as low as they are, the effects of the conflict could be with us for many more months.”
Calls for more help with energy bills
The End Fuel Poverty Coalition is urging the UK Government to prepare an “emergency heat tariff” to limit the cost of heating homes this winter.
Gas prices under the Price Cap have risen to a maximum 7.97p per kilowatt hour from today, an increase of 27 per cent year-on-year.
The coalition has called for gas prices to be capped at 10p per kWh amid forecasts they could reach as much as 12p this winter.
Simon Francis, co-ordinator of the coalition, said: “With the number of households in fuel poverty set to soar again and at the most dangerous time of the year, the Chancellor has no choice but to act to provide increased targeted support to vulnerable households and plan to deliver wider universal help for people facing a sixth winter of high energy prices.”
National Energy Action chief executive Adam Scorer also called for additional targeted help for households most at risk this winter, alongside action on energy debt and improving energy efficiency.
VAT cut takes effect today
The increase in the Price Cap comes despite the UK Government's temporary removal of VAT from household electricity, which also takes effect today.
The five per cent levy on electricity has been removed until March 31 next year, with the UK Government estimating the measure will save the average bill payer around £45 a year.
Households will continue to pay five per cent VAT on gas.
Energy Secretary Miatta Fahnbulleh said: “I know energy price rises weigh heavily on homes across the UK this winter.
“From October 1, our VAT cut will give households some much-needed breathing space, making the energy price cap £45 a year less than it would have been.
“This follows the £150 of costs we removed from bills earlier this year.
“Alongside this, we continue to look at what more we can do to protect families from unaffordable bills, as we drive down bills for good through clean power.”
It’s important to be aware the £1,999 increase on January 1 is currently a forecast rather than a confirmed increase. Ofgem will set the Price Cap covering January to March 2027 on November 25.
