Energy bills are forecast to rise again this winter in another blow for millions of households. The Ofgem price cap went up by 13% in July after the conflict in the Middle East caused a spike in wholesale costs. But analysts have warned of another bill rise when the price cap updates again in October - just as temperatures start to drop and households begin to turn on their central heating.
Forecast for October
Energy research and consultancy firm Cornwall Insight currently predicts the Ofgem price cap will go up by another 2%. Ofgem has also updated its methodology to reflect that people are now using less energy as a way to save money.
Under its previous calculations, the current price cap is set at £1,862 a year and Cornwall Insight predicts this could rise to £1,906 in October. But based on its new lower estimates, the current price cap is set £1,663 a year and analysts say it could increase to £1,699 in October. Ofgem will confirm its October price cap on August 26, so forecasts may change slightly before then.
How to save money now
Comparison site Uswitch has urged households to take action now and considering locking into a cheaper fix. Sabrina Hoque, energy expert at Uswitch.com, said: "Every forecast we're seeing points to a more expensive October than last winter – it's just a question of how much more."Don't wait until you’re hit with a bigger-than-expected bill to realise you're paying too much. Lock in a cheaper fixed rate now – you'll beat every current prediction, and you'll still get October's VAT cut automatically."
The warning comes despite Prime Minister Andy Burnham announcing a temporary VAT cut on domestic energy bills from October. The Government claims it will save a typical household about £45, though analysts say rising wholesale energy caps are likely to offset any saving.
Ms Hoque continued: "The VAT cut is welcome and will provide some relief over winter, but it only applies to electricity, and it's modest next to what suppliers are predicting for the price cap."
What is the Ofgem price cap?
Despite what its name suggests, the price cap does not actually limit how much you pay for gas and electricity. Instead, it sets a cap on what you can be charged for unit rates and standing charges - so your energy bill is still based on how much gas and electricity you are using.
The unit rate for gas is 7.33p per kilowatt hour (kWh) while the standing charge is 29.04p. The unit rate for electricity is 26.11p per kWh. The standing charge for electricity is 57.19p a day. The price cap figure represents what the typical direct debit household with average energy consumption can expect to pay. There are different unit rates and standing charges for prepayment customers and those who pay on receipt of bills.
