Bills reduced

Fall in energy price cap to ease cost of living crisis

Gas bill
Households should see energy costs falling in the summer (pic: Terry Murden)

Energy bills are expected to fall again in July to their lowest in two years in what could see a summer of cuts in the cost of living.

Expectations are that the energy regulator Ofgem will reduce the cap by £116 to £1,574, meaning an average household on a default tariff will pay £500 per year less than in July last year when it was £2,074.

This is still higher than before the hike in gas prices caused by Russia’s invasion of Ukraine and there are now vastly fewer energy companies competing for household customers. One analyst said this has turned the price cap into a price fix.

However, with inflation falling towards the Bank of England’s 2% target, paving the way for an interest rate cut in June or August, the pressure on household bills is easing. It points to an uplift in consumer confidence that may help the Conservative government which is expected to call a general election in the autumn.

Dr Craig Lowrey, Cornwall Insight’s principal consultant, said: “We must recognise lower prices don’t erase all the problems. The very fact we are still seeing bill levels which are hundreds of pounds above pre-crisis levels underscores the ongoing challenges faced by households.”

Cornwall Insight has forecast that the price cap will rise slightly at October’s three-monthly Ofgem review before falling again in January 2025.

Dr Lowrey said: “While the cap is certainly not the ticket back to long-term energy bill affordability, Ofgem’s review could pave the way for fairer, more efficient energy bills.”

Alastair Douglas, chief executive at TotallyMoney, the credit data company, said: “While the latest forecast predicts a drop in the energy price cap, making the cost of energy around £500 a year lower than 12 months ago, bills are still hundreds of pounds more than they were a few years ago. During the same time, the overall cost of living has shot up, making things even harder for millions of people across the country.

“Not long ago, there were almost 50 energy firms fighting for customers, offering price-cap-busting deals for those willing to switch.

“But now, six suppliers dominate 70% of the market, meaning competition has bottomed out, and the price cap has essentially become a price fix. One option mooted by the regulator, is that it might remove acquisition tariffs — and if it does, it needs to protect existing customers from being punished for their loyalty.

“There are some offers which under-cut the price cap coming onto the market, so it’s worth checking to see if you can save money on your bills. However, always read the smallprint, as some might come with hefty early-exit fees of up to £300, meaning you might be tied down for a while.”

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