- The energy price cap will rise 13% on 1 July to £1,663, adding £18 a month to average household energy bills (Energy price cap will rise by 13% from July | Ofgem)
- It looks as if it has only risen £22 from the current price cap, but this is only because Ofgem is assuming lower average usage – if it used previous averages, it would be £1,862
- Gas bills will rise 24% and electricity bills 5%, reflecting increased renewable generation on the system
- The price cap is forecast to rise slightly again on 1 October
- Price rises will feed into inflation figures, which could mean interest rates rise in the second half of the year and impact mortgage rates
Sarah Coles, head of personal finance at AJ Bell, comments:
“Energy bills are set to rise in July, putting budgets under pressure as prices rise on all sides. And the pain may not stop there.
“The price hike isn’t a major shock. It has been on the cards since the Iran war began, and wholesale gas prices climbed. This has pushed gas bills up an eyewatering 24%. The more positive news is that thanks to higher renewable generation, gas played a smaller role in setting the electricity price, so that is up just 5%. This is a far cry from the situation during the energy crisis, when any increase in wholesale gas prices hiked both gas and electricity bills. The price cap has protected us from bill rises since the outbreak of the war, but that protection is going to come to a horribly sudden end in July.
“The other slice of more positive news is that we’ve cut back on energy use so much that the Ofgem calculations now factor in lower energy use when calculating average bills on the price cap. Electricity use has fallen 7% and gas 17%. It demonstrates the huge efforts people have made over the past few years to keep a lid on costs.
“In the summer months, it’s easier to take steps to control energy use, but all eyes will be on what happens in October. This will depend on events in the Middle East and the peace process. A swift end to the conflict could help control costs, but the longer it continues, the more wholesale prices will be affected, and the higher the price cap is likely to be.
“At the moment, October’s cap is expected to be set slightly higher than the July level. The fact that prices are likely to stay so high as the cold weather creeps in could mean some incredibly difficult decisions for households on lower incomes. Given DIY season is well underway, if there are any cost-effective energy saving home improvements you haven’t yet tried, it’s worth prioritising them over the summer.
“The 40% of households on fixed tariffs will still be protected from price hikes until their current deal comes to an end. If you’re on a price cap tariff, you could consider fixing. Some deals are charging less than the current price cap, so you could save money immediately. You don’t need to fix in order to save though, because there are also discounted tariffs. These are variable, so they’ll rise when the price cap does, but they will still save you money.
Mortgages
“The impact of the change doesn’t start and end with the bills themselves. The rise in July will also feed through into inflation figures. By then we’re likely to see higher fuel costs power broader price rises. The Bank of England is tasked with keeping inflation at 2%, which is why the market has been pricing in two interest rate rises by the end of the year.
“It means anyone on a variable rate mortgage could see their monthly payments get more expensive. Those who are on a fixed rate and coming up for a remortgage may also see deals get pricier, especially if inflation comes in hotter than expected. It’s worth shopping around for a new fix as soon as you have six months left to run on your fixed rate deal. If mortgages get cheaper you can find a better deal, but if they’re pricier, you’ll have locked in a relative bargain.
“It makes sense to do what you can to cut costs now, because energy bill hikes in July are just one of a series of price rises that could mean a stressed and stretched summer for our finances.”
