Ofgem will announce its latest energy price cap on Wednesday, with households facing the prospect of higher fuel bills ahead of winter. The new cap, covering October to December, will set the maximum unit rates and standing charges suppliers can apply to standard variable tariffs.
Energy analysts at Cornwall Insight have issued their final forecast before the announcement, predicting the typical annual bill will rise by around four per cent. Under Ofgem's current definition of a typical household, the figure is expected to increase from £1,663 to £1,729 from October 1.
October price cap forecast
Cornwall Insight said that on a unit-for-unit basis, this would take household energy costs to their highest level since July 2023. Ofgem changed the Typical Domestic Consumption Values (TDCVs) used to illustrate the cap from July, reflecting lower average household energy use.
The new figures assume annual electricity use of 2,500kWh and gas use of 9,500kWh. Under the previous consumption figures — 2,700kWh for electricity and 11,500kWh for gas — Cornwall Insight estimates the October cap would be equivalent to £1,941, up from the current £1,862.
The change in typical consumption figures does not reduce what households are charged for the energy they use. The price cap limits the amount suppliers can charge per unit of gas and electricity and through daily standing charges, rather than setting a maximum household bill. Households using more energy will pay more, while those using less will pay less.
Cornwall Insight's latest forecast puts the average electricity unit rate from October at 26.57p per kWh, with a standing charge of around 55p per day. Gas is forecast at 7.90p per kWh, with an average standing charge of around 31p per day. Actual rates vary by region and payment method.
Why energy bills are forecast to rise
Cornwall Insight said continuing uncertainty surrounding the US-Iran conflict has pushed wholesale prices for the coming winter to their highest level in almost four years. Ongoing heatwaves across Europe have also pressured energy markets by increasing demand for gas-fired power generation to meet greater demand for air conditioning and cooling.
Disruption to global gas markets is also affecting efforts to refill European gas storage facilities ahead of winter. The predicted increase comes despite the UK Government announcing changes to VAT on household electricity bills in July.
Cornwall Insight said its October forecast already takes the VAT change into account, with the UK Government saying the measure would cut around £45 from the annual price cap. However, increases in wholesale energy costs are expected to outweigh the saving.
There could also be further pressure on household budgets after Christmas, with Cornwall Insight's current forecast pointing towards another increase in the price cap from January 1. The consultancy stressed that wholesale markets remain volatile and its January prediction is likely to change before Ofgem announces that cap in November.
Government and industry response
The October price cap will come into force on October 1 and remain in place until December 31. Last week, a UK 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.
“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.”
Dhara Vyas, chief executive of Energy UK, said more targeted and permanent support was needed for households struggling with energy costs. She said: “Too many households continue to feel the strain of high energy bills. Instead of relying on stop-gap, ad hoc or emergency measures, we need a better, targeted and more permanent way to give people confidence that they'll get help when they most need it.”
