UK power companies are set to be allowed to raise prices again, with the energy price cap forecast to be raised by almost £100 on the current level set by regulator Ofgem.
A week ahead of the official announcement from Ofgem and a day after a significant fall in inflation, in large part due to the drop in the price cap last month, Cornwall Insight has made its prediction for January's cap, based on wholesale energy prices this week.
Wholesale prices yesterday, the precise midpoint between when the previous cap was set and the date of the next move, will be used to decide the new prices that suppliers will be able to charge.
For the period from next January to March, the energy cap will be set at £1,931 for a typical household's annual energy use, Cornwall said, up from £1,834 at the moment, though larger households and others that use more energy will be charged more.
Wholesale rises in gas prices have been on the rise in recent months, against a background of the war in Gaza, strike action among Australian gas workers and disruptions to the Finnish Balticonnector pipeline.
The cap should decline at the end of March for the second quarter and again for the third, Cornwall added, though this remains much more speculative as wholesale energy markets remain highly volatile, but even so will remain well above historic levels.
At the start of 2023, the price cap was £4,279, falling to £3,280 in the second quarter and £2,074 in the third. However, most households were alleviated through the government’s Energy Price Guarantee which aimed to keep a typical dual fuel bill at £2,500, which ended on 30 March.
“This price rise will come at the worst time of year for households, who will be using more energy at home during one of the coldest points of the winter," said Richard Neudegg, director of regulation at Uswitch.com.
“Consumers on standard variable tariffs are particularly exposed to fluctuations in the wholesale energy market, as the price cap now changes every three months.
“This quarterly price change is piling extra financial uncertainty on consumers, as it’s challenging to budget for a bill when rates can change so frequently."
He said the price cap is “no longer fit for purpose, and the system needs reforming to create a more competitive market, which also protects households”.
Andy Prendergast, national secretary of the GMB Union, which represents a number of workers in the UK gas sector, agreed to a large part.
He said: “These price hikes just show how we have lost control of our energy system.
“At the exact moment when consumers are being told that inflation is falling, they get the news that bills are going up again."