Ofgem's price cap will rise 4% to £1,723 a year from October, the highest level in three years, as wholesale gas costs tied to the Middle East conflict outweigh a government VAT cut. The increase follows a 13% rise in July and adds £60 a year to a typical household's bill.
Ofgem confirmed on Wednesday that its household energy price cap will rise 4% to £1,723 a year from October, the highest level in three years. The increase adds £60 a year for a typical household using both gas and electricity. It follows a 13% rise in July.
Wholesale gas costs drive the increase
Ofgem said the rise reflects higher wholesale gas prices caused by the ongoing conflict in the Middle East. Cornwall Insight said wholesale energy prices for the coming winter have risen to their highest level in almost four years, while natural gas storage remains at historic lows ahead of winter demand. According to BBC News, Neil Kenward, Ofgem's director general for markets, said "High international gas prices are continuing to drive energy costs in the UK."
The government cut VAT on household electricity bills from October, a move it estimated would reduce the annual price cap by £45. But rising wholesale costs have more than offset that saving, underlining the UK's continued exposure to volatile international energy markets.
Fixed-tariff households escape the rise
About 35%, or 11 million households, are on fixed tariffs and will not be affected by the new cap. Another 22 million households on price-cap tariffs will pay more. From October, the unit rate for electricity will rise from 26.11p to 26.32p a kilowatt hour. Gas charges will rise from 7.33p to 7.97p over the same period.
The typical household will now pay £350 a year more than in 2024, when the Labour government took power promising to cut bills by £300 a year by the end of the decade. Clare Moriarty, chief executive of Citizens Advice, said the rise shows living standards continuing to erode as bills outpace incomes and household debt keeps growing.
Cornwall Insight has forecast that domestic energy prices may rise a further 9% in the new year, bringing renewed concern to households at the coldest time of the year.
Sources: Financial Times, BBC News, The Guardian
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