Energy bills are forecast to rise again this winter, prompting questions about whether now is the right time to fix a new deal. The Ofgem price cap is predicted to go up by another 4% this October, according to analysts at Cornwall Insight, which would take energy bills to their highest level since July 2023.
Households were already hit with a 13% increase in energy bills in July as the Iran war continues to drive up costs. The Ofgem 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.
How the Price Cap Works
This means your energy bill is still based on how much gas and electricity you are using. Ofgem has updated its methodology for how it calculates its main price cap figures 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 £1,941 in October. But based on its new lower estimates, the current price cap is £1,663 a year and analysts say it could increase to £1,729 in October. These figures represent what the typical household paying by direct debit can expect to pay a year for energy. Ofgem will announce its October to December price cap on August 26.
Should You Fix Into a New Energy Deal?
Experts at comparison site Uswitch.com say households who are on the price cap can save money by switching to a fixed energy deal now, with the best deals on the market currently undercutting the latest prediction by around 12%. When comparing energy deals, you should look at the unit rates and daily standing charges compared to your current deal and the price cap.
While fixed rate tariffs can protect you from price cap rises, you should also check for any exit fees in case you want to leave the contract early. Keep in mind the price cap changes every three months, so whether fixing is right for you depends on how you think energy bills will change over the next year. It is also worth factoring in how much you value price certainty and knowing how much you will pay over the next few months.
Expert Advice on Fixed Deals
Richard Neudegg, director of regulation at Uswitch.com, said: "With continued instability in the Middle East, higher energy costs are now looking very likely throughout winter as a third consecutive price cap hike is predicted for January. Those still on price cap tariffs who don’t take action before October should brace themselves to pay even more for their heating, with standard gas prices likely to be a staggering 26% higher than they were last year."
Laura Hinton, senior commercial manager at MoneySuperMarket, said: "There are still fixed deals available that beat the current price cap... current forecasts suggest the price cap could rise again in January, meaning now is the time to act if you want to lock in cheaper energy bills and have more certainty about your energy bills over winter."
The warning comes despite Prime Minister Andy Burnham announcing a temporary VAT cut on domestic energy bills from October. Labour claims it will save a typical household about £45, though analysts say this will likely be offset by the price cap going up.
