UK households could see their energy bills rise to the highest level for three years this winter, according to new forecasts.
The cost of gas and electricity are both due to increase despite Andy Burnham's plan to remove VAT from household electricity bills later this year.
The energy price cap is currently expected to jump by 4% in October compared with the current rate, experts at Cornwall Insight have said.
Drivers behind the increase
Analysts claim the increase is driven by continued uncertainty linked to the Middle East conflict, which has pushed wholesale energy prices higher. The ongoing heatwaves across Europe have added further pressure by increasing gas demand for power generation to meet air conditioning and cooling requirements.
Cornwall said it expected a typical household to be facing an annual bill of £1,729, up from £1,663, based on Ofgem’s updated definition of a typical consumer, which came into effect from July to reflect falling household energy use.
It said this would be the equivalent of £1,941 per year based on its previous calculations, up from £1,862 currently. It would mark the highest average bill since July 2023.
Impact of VAT cut and winter pressures
The increased October cap, which will remain in place for three months, will come into force as households start to increase their energy usage further by using their heating more regularly.
Cornwall said the expected increase in October will be less than otherwise expected because of the proposed removal of VAT from household electricity bills.
The Prime Minister previously said this would knock around £45 off the annual Ofgem price cap from October. However, the experts said the recent swing in global energy prices has more than offset the downward impact of the VAT policy.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: "Rising energy bills aren’t welcome at the best of times, but with winter approaching this latest hike will hit struggling households especially hard. Driven by international conflict rather than domestic policy, it is a stark reminder that our energy bills remain tied to events thousands of miles away."
Dr Lowrey continued: "Moments like this are the strongest argument for reducing Britain’s reliance on volatile international gas. While temporary relief like VAT cuts help soften the blow, they don’t touch the underlying fact that Britain is heavily dependent on imports of natural gas."
Government response
A Government spokesman said: "Tackling the cost of living remains a key priority for this Government and we know families will be worried by the prospect of higher energy bills this winter."
"We’re acting to give consumers breathing space with the cost of living – cutting VAT on energy bills, ensuring around six million households get the £150 warm home discount this winter, and making millions of homes cheaper to run through our warm homes plan."
They added: "Alongside our efforts to support rapid de-escalation in the Middle East, we will do everything we can to shield consumers from global energy shocks and bring down bills for good."
