50% Off! Beat the market in 2025 with InvestingProCLAIM SALE

UK energy bills to fall after Ofgem lowers price cap by 7%

Published 25/08/2023, 07:18
© Reuters.
GBP/USD
-

By Nina Chestney

LONDON (Reuters) - Millions of British households will have cheaper energy bills from October after British energy markets regulator Ofgem cut its price cap again to reflect a further fall in wholesale power and gas prices.

Ofgem on Friday lowered its price cap on household energy bills by about 7% from Oct. 1 to 1,923 pounds ($2,418.56) a year for a typical dual-fuel household.

The drop will save households an average of 151 pounds compared with the previous quarter, Ofgem said.

The drop also represents the lowest level since October 2021 and reflects further falls in wholesale energy prices as the market stabilises and suppliers return to a healthier financial position after four years of losses, it added.

Wholesale power and gas prices hit record highs in Britain and Europe last year after Russia's invasion of Ukraine cut gas supplies.

Although wholesale gas and power prices have fallen by about 85% and 80% respectively since record highs in the first quarter of last year, there is still price volatility and the price cap remains well above the average before the energy crisis took hold.

"It is welcome news that the price cap continues to fall. However, we know people are struggling with the wider cost of living challenges and I can’t offer any certainty that things will ease this winter," said Ofgem Chief Executive Jonathan Brearley.

About 29 million customers are on standard rate tariffs protected by the price cap, which was introduced in 2019 to protect consumers.

"As we head into the colder winter months, uncertainty remains around the outlook and many will be hoping for a mild winter. Current estimates are that prices could increase again in January and will remain at these higher levels for the foreseeable future," said Simon Virley, vice chair and head of energy and natural resources at KPMG.

British Prime Minster Rishi Sunak told reporters that the government was working to bring down inflation to further ease the cost of living burden on households.

British inflation has been slow to fall since it hit a 41-year high of 11.1% last year, and at 6.8% in July was the highest of any major economy.

Ofgem sets the cap using a formula that includes suppliers' network costs and environmental and social levies, with wholesale energy prices the largest factor. It reviews the cap every quarter to reflect movements in the wholesale market.

It said that while the cap has helped to protect households from the full extent of surges in wholesale prices over the last two years, it is a "blunt tool" and it is important to look at alternative mechanisms to assess whether they would work better in the current volatile price environment.

Ultimately, however, any decision about whether reform of the price cap is needed is up to the government, Ofgem officials told reporters.

© Reuters. FILE PHOTO: Electricity pylons are seen in Wellingborough, Britain, March 30, 2022. REUTERS/Andrew Boyers/File Photo

The regulator also said it has introduced measures to reduce costs for customers on pre-payment meters and hopes to have a code of conduct in place by winter for energy supplier behaviour.

($1 = 0.7951 pounds)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.