Ofgem is set to announce the new energy price cap on Thursday, with analysts forecasting a 50% hike in household energy bills.
The energy sector regulator has confirmed it will announce the results of its latest price cap review at 11am on Thursday. The window for calculating the new domestic energy price cap closed on Monday.
Experts expect bills to soar. Martin Young, an energy industry analyst at Investec, said the new limit was likely to be set at £1,924 based on wholesale energy prices during the review period. Cornwall Insights, a specialist energy consultancy, thinks the price cap will be set at £1,915, which would add £600 to the average annual household heating bill.
That would put household bills 51% above the current level. The increase is set to affect all Brits, with research house Cornwall Insights saying earlier this month that surging energy prices had forced all domestic providers to raise their prices to the cap limit.
Ofgem declined to comment on the estimates.
The massive hike in heating bills will heap more pressure on already stretched household budgets.
The Office for National Statistics said today that two thirds of Brits reported struggling with rising living costs in a recent survey. Eight in ten are facing rising energy bills. Separate data from the Bank of England showed credit card spending is on the rise.
Young said the price cap could rise even further in October when it is reviewed. He estimates it could reach £2,450.
Energy costs are rising due to a global spike in demand for natural gas after economies restarted. That has driven up the price in the wholesale market, where domestic suppliers buy from.
Cornwall Insights said today energy prices could remain volatile until the end of the decade without fundamental reform.
Tom Edwards at Cornwall Insight said: “Without significant changes to the way we procure, supply, and consume energy, we are likely to see many years of boom-and-bust energy pricing in the UK.
“Looking ahead to the start of the 2030s, we can see that once the nuclear power stations start to retire in greater numbers and the coal fired power stations have closed for good, there is a new period of volatile pricing coming to the UK energy market.
“Our overreliance on imported energy will also leave us vulnerable to variable pricing, with supply chain disruptions, geopolitical tensions and economics shifts, all having the potential to spill over into our market.”
The mismatch between the high cost of buying gas and the limit on what suppliers can charge has led to the collapse of 25 suppliers - roughly half the market.
Ofgem is looking at potential reforms to make Britain’s energy market more resilient.
The government is also looking at measures to help ease the cost of living crisis. Action has reportedly been delayed by the crisis engulfing Downing Street over parties during lockdown.
Young said: “We await various imminent consultation decisions from Ofgem, but these are unlikely to solve the cost of living crisis, and upwards inflationary pressures. Politicians need to move on from ‘partygate’ and bring forward solutions.”
Without support, Young said rising energy prices could push inflation up to 7% - almost four times the Bank of England’s target. Inflation is currently running at a 30-year high of 5.4%.