Energy bills are predicted to surge by 16% to almost £2,000 a year in January, the highest level since 2023, as the cost of living crisis deepens for many households. The forecast comes as Andy Burnham, the Mayor of Greater Manchester, hinted at more possible help with energy bills, saying he was “looking at any measure that can give people breathing space”.
Price cap rise and wholesale costs
Regulator Ofgem’s price cap is already rising by 4% tomorrow, despite the government temporarily removing VAT from domestic energy bills. Industry analysts Cornwall Insight forecast the cap will leap by 16% to £1,999 a year for a typical dual fuel customer on January 1, driven by a jump in wholesale energy costs following the Iran war.
The predicted rise, in the depths of winter, has added to pressure on Chancellor John Healey to announce help for the most hard-pressed households in next month’s Budget. It comes as the boss of supplier EDF, Simone Rossi, warned the UK was “walking into a second energy crisis” and called for an extension to the VAT cut on electricity.
Impact of Middle East conflict
Mr Burnham, speaking from the Labour conference in Liverpool, said: “We’re looking at any measure that can give people breathing space, that can take the pressure off.” The jump in energy bills comes as fuel bills have rocketed because of the Middle East conflict, with the nationwide average for diesel at almost £2 a litre. The Bank of England is also predicted to increase interest rates in November, in a blow to borrowers.
Cornwall Insight said the knock-on effects of the US-Iran war have seen EU gas storage stocks at their lowest September levels in 15 years, impacting the possibility of imports to the UK this winter. Dr 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.”
Potential support and advice
He added: “With the Budget just around the corner, there is the possibility of further household support beyond the VAT move announced in July. However, the Government is going to have to think carefully about the type and level of support that they make available.” Richard Neudegg, director of regulation at Uswitch.com, said: “Household energy prices look set to go from worse to even worse this winter. This latest prediction would represent the highest rate of increase since the energy crisis and will be extremely hard to bear for many households at the coldest time of year.
“It is too early to call the exact level of the January price cap, given the continued instability in the Middle East, but the direction of travel is very concerning, alongside other cost of living pressures households face. Switching energy tariff to a well-priced fixed deal is the biggest lever households on the price cap can pull to bring their costs down right now. The cheapest deal on the market is currently £355 less than this predicted January price cap based on typical use, with some deals also cheaper than October’s rates.
“While getting off the standard variable tariff means you can avoid these big increases to come – with bills already significantly higher than last year – it may not be enough, so keeping a close eye on energy usage will be crucial. This winter will be tougher than last, so households should take action now. For those worried or concerned about paying their bills – it’s important not to suffer in silence.”
