Martin Lewis has warned households the outlook for energy bills “really isn't looking good” after UK wholesale gas prices surged to their highest level since the height of the energy crisis following Russia's invasion of Ukraine.
The founder of MoneySavingExpert.com shared a chart showing UK natural gas trading at around 196p per therm on Wednesday - more than 140 per cent higher than a year ago. He warned the immediate impact would be more expensive fixed energy deals, while sustained higher wholesale costs are also feeding into the calculation of January's Ofgem price cap.
January price cap forecast
Martin said the January cap - starting on New Year’s Day - is currently on course to rise by between 10 and 15 per cent compared with the level taking effect in October.
If a rise of that size were applied to Ofgem's new typical annual figure of £1,723, it would take it to around £1,895 to £1,981 - an increase of between £172 and £258. It’s important to be aware these figures have been calculated by the Daily Record based on Martin's percentage forecast and are not figures quoted by the consumer champion.
Posting on X on Wednesday, Martin said: “The situation for domestic UK energy bills really isn't looking good.”
He added: “The immediate impact is the rate you can get a new fix at will get even more expensive. Then longer term, this feeds into the January price cap. It's currently on target to rise 10% to 15% over October's cap, and that remember is already confirmed to rise 3.6% rise, and was on top of the 12.6% rise in July.”
Wholesale prices surge
Martin's warning came as UK natural gas prices rose by around 3 per cent on Wednesday to about 195p per therm, hitting their highest level since December 2022.
Oil prices also climbed above $100 a barrel amid renewed concerns about disruption to supplies as fighting in the Middle East continues. Brent crude rose by nearly 3 per cent to around $100.50 a barrel on Wednesday afternoon after attacks on Iranian oil tankers and concerns about further disruption to supplies.
The latest rises have prompted warnings that households could face another substantial increase in energy bills during the winter.
Andrew Goodwin, chief UK economist at Oxford Economics, said the increase in wholesale gas prices had more than offset the saving from the UK Government's removal of VAT from domestic electricity bills between October and March.
He said: “We think the price cap could rise by another 13% in January - wholesale prices are currently well above the level of the previous observation window, and our commodities team expect them to remain high in the near term.”
Impact on households
The October price cap is already increasing after wholesale gas costs rose as a result of the ongoing conflict in the Middle East. While the headline cap figure is based on a typical household, it is not a limit on the total amount someone can pay. Actual bills depend on the amount of gas and electricity used.
The Ofgem price cap is updated every three months, with the next level covering January 1 to March 31, 2027. The regulator is expected to announce the January cap in November.
Simon Francis, coordinator of the End Fuel Poverty Coalition, warned the wholesale prices now being seen in the market will feed into the calculation.
He said: “The wholesale cost of gas has hit a high not seen since December 2022, while heating oil prices have also surged upwards again. The Ofgem price cap for January is being calculated on prices like these, which means it could be brutal for households already struggling. Those who use heating oil or are on some heat networks and are not on the price cap may see increases even sooner.”
He called on the UK Government to provide targeted support for struggling households and people in energy debt, as well as backing longer-term energy efficiency measures.
Simon Cran-McGreehin, head of analysis at the Energy and Climate Intelligence Unit, said gas prices had not fully recovered from the impact of Russia's invasion of Ukraine in 2022, while the Iran war meant households and businesses were facing another winter of rising bills.
He said: “Only by getting off gas and oil can we protect ourselves from volatile international fossil fuel markets.”
Higher energy costs are also adding to wider concerns about inflation. Susannah Streeter, chief investment strategist at Wealth Club, said the conflict in the Middle East was creating continuing supply concerns around oil and gas. She warned if businesses were forced to pass higher energy costs on to customers through higher prices, it risked creating another “inflationary spiral”.
