Average household energy bills rise 80% to £3,549
Increase kicks in from 1 October
Prices 178% higher than a year ago
11.15am: 'Substantial package of support' unavoidable - think tank
Whoever is set to become the next prime minister, Liz Truss or Rishi Sunak, will be forced to introduce a fresh package of support, according to The Institute for Fiscal Studies (IFS).
The think tank said Friday morning that a “substantial package of support” will be unavoidable no matter what is said on the campaign trail or the outcome of the vote.
“Looking beyond this winter, energy prices also look like they will remain very high well into next year, which will put pressure on the government to provide further support in the coming months,” Isaac Delestre, IFS economist, commented.
The new hike in the price threshold means government support will cover just 47% of the increase in bills, IFS added.
It said covering the same proportion of the ris would cost another £14bn.
10.31am: Recession may be sooner and longer than first expected
Following Ofgem’s 80.06% hike, the UK may be sooner plunged into a longer recession than first originally thought, according to leading City economists.
The Bank of England predicted earlier this month that a recession lasting five quarters, starting from October, will further exacerbate people’s problem of squeezed budgets.
Although analysts think this forecast is too optimistic, with substantial government intervention required to prevent a devastating impact on consumer confidence and the economy.
Paul Dales, Capital Economics, commented: “We previously thought CPI inflation would rise from 10.1% in July to a peak of 12.5% in October, [but] we now think it will peak at 14.5% in January and won’t fall as quickly during the rest of 2023.
“That’s enough to mean that real household disposable incomes may fall by 4% in 2023 rather than by 3%.”
That could result in GDP falling by 2%, double the 1% presently predicted, according to the Standard.
He added: “It is all in the hands of the government - I don’t think they will be able to prevent a recession but I suspect they will limit its depth.”
10.06am: Sturgeon wants price cap rise 'cancelled'
Scotland’s First Minister Nicola Sturgeon believes the energy price cap rise “cannot be allowed to go ahead” due to its unaffordability for millions of households.
She tweeted: “This rise must be cancelled, with the UK gov and energy companies then agreeing a package to fund the cost of a freeze over a longer period, coupled with fundamental reform of the energy market.”
The country’s energy secretary Michael Matheson, meanwhile, agreed with Sturgeon, insisting the hike is “unsustainable” and would have a detrimental impact on families, with millions being plunged into ‘fuel poverty.’
The threshold, which is expected to come into effect for approximately 24mln homes across England, Scotland and Wales on default energy tariffs, will be in place for the three months leading up to 31 December, when it will likely be revised upwards again.
9.47am: Small business owners grow angrier
How will this impact small business owners?
There has been widespread concern and fury from households and consumers all around the UK but small and medium-sized company owners have also revealed their worries, frustration and rage.
Natalie Bamford, Colleague Box chief executive, commented: “This is just another dagger in the heart for small business owners.
“The crushing realisation that no matter what you do, your performance, sales, your deemed success will inevitably be out of your hands and instead controlled by the greedy corrupt few at the top who only care about profit.
“The reality is that those in power couldn't care less about small business owners so you're left to fend for yourself, hope and pray that you make it through yet another avalanche of adversity.”
One business founder compared the hardship of rising energy prices to the “neglect” small businesses received during the Covid-19 pandemic.
Lee Chambers, founder and psychologist at Essentialise Workplace Wellbeing, said: “We are in for a winter of discontent with both businesses and consumers backed into a corner with a necessity more than doubling in price.
“This isn’t an incremental rise, it’s more like a volcano erupting.
“This will skittle some businesses that simply can’t absorb the costs and sadly they will be the same small businesses that were neglected during the pandemic.”
9.25am: Gas and oil companies gain value
You may be wondering, how have the share prices of some of the UK’s largest energy companies moved after an hour-and-a-half of trading?
Despite the worrying news to households, with more set to be plunged into ‘energy poverty,’ it seemed to have a positive impact on the share prices of the so-called ‘big six’ energy providers.
Centrica PLC (LSE:CNA)-owned British Gas jumped 0.8% on the news but was ever so slightly outpaced by rival Eon, which crept 0.9% higher on the German stock exchange.
EDF and RWE (ETR:RWE)-owned Npower, meanwhile, remained unchanged on their respective exchanges (French and German).
Iberdrola, which is the parent company of Scottish Power, moved 1.8% higher in Frankfurt, compared to SSE PLC (LSE:SSE), which edged 0.5% higher in London.
Oil suppliers Shell PLC (LSE:SHEL, NYSE:SHEL) and BP PLC (LSE:BP.) were both nudged 0.3% higher on Friday, with both having reported record profits this year.
Harbour Energy PLC (LSE:HBR), the North Sea oil and gas maker that reported a 12-fold increase in profits on Thursday, enjoyed the greatest increase in value, up 2.1%.
9.00am: Ofgem not to blame
Economist Julian Jessop has defended Ofgem, reinforcing that the price cap is to prevent large energy companies from making excess profits.
He said in another Tweet that although he is not a fan of the price cap, bills would likely be higher if it were not in place.
Foe the umpteenth time, the (stated) purpose of the #Ofgem cap is to prevent domestic suppliers from making excess profits.
It is not there to prevent prices from rising at all, or to fix the wholesale market.
Those venting their spleen at @ofgem are therefore way off the mark.
— Julian Jessop ???????? ???????? (@julianHjessop) August 26, 2022
8.45am: Inflation to hit 12.5% in October
Stephen Millard at think tank NIESR outlined the impact Ofgem’s Friday morning announcement would likely have on inflation.
“This will add 2.7 percentage points (pp) to the consumer prices index inflation rate in October, taking our forecast for CPI inflation in October from 11.3% to 12.5%.
“We expect the overall contribution of gas and electricity prices to CPI inflation in October to be 5.9pp.
“[NIESR] forecast CPI inflation of 14.2% in January.
“This compares with the recent prediction of Citi that CPI inflation will peak at over 18% in January.
“One implication of this rise in expected inflation is that the Monetary Policy Committee will now need to tighten monetary policy faster and by more than we had previously thought.
“We now expect the policy rate to rise to 4.25% by May of next year.”
8.31am: 'People will die'
Consumer expert Martin Lewis has warned about what is expected to unfold should the government fail to intervene sufficiently.
I've been accused of catastrophising about the energy hikes that have now come true.
Yet let me be plain, 'doom-mongering' or not.
More help is desperately needed for poorest or people will die this winter due to unaffordability of an 80% SO FAR energy price cap hike.
— Martin Lewis (@MartinSLewis) August 26, 2022
8.22am: Wholesale energy market failure
Richard Neudegg, Uswitch director of regulation, insists the wholesale energy market failed.
“After seemingly endless predictions, the true magnitude of the October energy price cap is now clear.
“Ofgem has rubber-stamped the letters from suppliers that will now start landing on millions of doorsteps informing customers of exactly how much they’ll need to pay for their energy as we go into winter.
“Households will face average monthly charges of £362 based on expected usage - almost three times more than the same period in 2021.
“Even after the £66 monthly discount currently on the table from the Government, families will need to find on average an extra £169 per month compared to last year, when many household budgets are already maxed out.
“The energy crisis we face this winter must never be allowed to happen again.
“This is a failure of the wholesale market and, until that is resolved, we won’t have a long-term solution.
“The government has made it clear that it will not intervene further until a new prime minister is confirmed.
“As concerning as this is, there does seem to be consensus that more support will be made available, but it remains to be seen if it will be enough.
“Until the government acts, which we expect will be in the coming weeks, consumers are being held in a cost-of-living limbo.”
8.10am: No support until new PM
There will not be any financial support for homes until Sunak or Truss is appointed as new prime minister, which will take place on 5 September.
One government spokesperson commented: “We know people are incredibly worried about rising energy bills, following unprecedented gas prices across the continent driven by global events, including Putin’s aggression in Ukraine and his weaponisation of energy in Europe.
“Direct support will continue to reach people’s pockets in the weeks and months ahead, targeted at those who need it most like low-incomes households, pensioners and those with disabilities.
“As part of our £37bn package of help for households, one in four of all UK households will see £1,200 extra support, provided in instalments across the year, and everyone will receive a £400 discount on their energy bills over winter.
“The civil service is also making the appropriate preparations in order to ensure that any additional support or commitments on cost-of-living can be delivered as quickly as possible when the new prime minister is in place.”
8.03am: Cornwall Insight ups 2023 forecasts
Cornwall Insight upped its forecasts for 2023, now predicting that bills will rocket to £6,616 from April next year.
It must be noted the energy researcher and analyser was only £5 out with its guess for today’s price cap.
Beforehand though, Cornwall anticipates the price threshold will reach £5,386 in January next year.
Craig Lowrey, principal consultant at Cornwall, said: “Today should be seen as a wake-up call to policymakers that short-term thinking and triage of the energy system is not enough.
“Without real change to the energy system in this country, it is consumers, suppliers and the economy that will all continue to suffer the consequences.”
7.49am: Chancellor reveals support for all
The set-to-be hiked level represents a 178% uptick compared to where it was a year ago but Chancellor Nadhim Zahawi insisted to be working hard to alleviate stress for households.
He said: “I know the energy price cap announcement this morning will cause stress and anxiety for many people, but help is coming with £400 off energy bills for all, the second instalment of a £650 payment for vulnerable households, and £300 for all pensioners.
“While Putin is driving up energy prices in revenge for our support of Ukraine’s brave struggle for freedom, I am working flat out to develop options for further support.
“This will mean the incoming prime minister can hit the ground running and deliver support to those who need it most, as soon as possible.”
7.38am: Ofgem boss had "no choice," blames Russia
Jonathan Brearley, Ofgem chief executive, commented on the new threshold: “We know the massive impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make.
“The price of energy has reached record levels driven by an aggressive economic act by the Russian state.
“They have slowly and deliberately turned off the gas supplies to Europe causing harm to our households, businesses and wider economy.
“Ofgem has no choice but to reflect these cost increases in the price cap.
“The Government support package is delivering help right now, but it’s clear the new prime minister will need to act further to tackle the impact of the price rises that are coming in October and next year.
“We are working with ministers, consumer groups and industry on a set of options for the incoming prime minister that will require urgent action.
“With the right support in place and with regulator, government, industry and consumers working together, we can find a way through this.”
7.30am: Worse to come...
The £3,549 figure will further pile pressure on the new prime minister, Liz Truss or Rishi Sunak, to help struggling homes pay their bills.
Soaring energy prices have been the largest catalyst behind 40-year inflation, according to analysts, which has rocketed to a 40-year high.
The energy cap is expected to worsen in 2023, with US bank Citi predicting they will rise to £4,567 in January and £5,816 in April, while energy consultant Cornwall Insight has predicted more than £6,600 in the second quarter of next year (read more).
Auxilione, one of the providers of the gloomiest outlooks, expects the cap to surge to £5,066 in January and then £6,552 from April.
7.12am: Household bills to hit £3,549 in October
The energy price cap will be hiked approximately 80% to £3,549 in October, as household budgets continue being squeezed amid the worsening cost-of-living crisis.
Ofgem, the UK energy regulator, revealed on Friday morning that bills for an average family will hit nearly £300 per month.