Energy bills are set to increase by £288 in July due to the ongoing conflict in the Middle East, households have been cautioned. Cornwall Insight, an industry expert, raised its latest projection for Ofgem’s price cap by 18% to £1,929 annually. This surge is a result of soaring wholesale energy costs driven by tensions between the US, Israel, and Iran. Cornwall Insight has been continuously revising its forecasts given the significant potential impact on bills.
Ofgem’s price cap restricts the unit rate paid by millions of households on standard variable tariffs. The total bill households pay is dependent on their energy usage. Although the cap was anticipated to decrease by 7% to an average of £1,641 annually, recent events in the Middle East and a doubling of wholesale gas prices have made an increase in the cap for July increasingly probable.
The looming prospect of additional financial strain on already burdened families has intensified pressure on the government to offer targeted assistance. Cornwall Insight’s latest forecast of £1,929 annually is slightly lower by £44 compared to its previous estimate. This slight reduction follows a stabilization in wholesale markets after a pause in attacks on energy infrastructure and hopes for a potential ceasefire in the Middle East conflict.
Dr. Craig Lowrey, Principal Consultant at Cornwall Insight, stated that energy markets are currently experiencing unprecedented volatility due to the Middle East conflict. While prices have stabilized recently, the forecast now indicates an 18% rise in prices. He emphasized that infrastructure damage and disruptions in marine traffic are limiting the potential for wholesale price reductions, making a July price increase unavoidable.
Martin McCluskey, Minister for Energy Consumers, highlighted the government’s efforts to reduce energy bills. He assured that the energy price cap will decrease starting tomorrow, protecting households with lower bills. Acknowledging the concerns about the impact of Middle East events on living costs, he affirmed the government’s commitment to supporting households through the crisis.
It is essential to note that Ofgem updates the price cap every three months, considering wholesale energy costs and additional policy costs. While the average cap for a typical dual fuel customer is expected to decrease to £1,641 annually, the cap levels are likely to fluctuate over the next year, primarily influenced by wholesale energy prices.
