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Millions of Britons set for lower energy bills after 7% price cap cut

Electricity pylons connected to the Dungeness B power station are seen behind a local house in Dungeness

By Susanna Twidale

(Reuters) -Most British household energy bills will fall from July after regulator Ofgem cut its domestic price cap by 7%, largely thanks to a fall in wholesale energy prices, but analysts warned the reduction could be temporary.

The drop could help to curb inflation further after it eased to 2.3% in April, its lowest since July 2021 but still above the central bank's 2% target.

Ofgem's new cap of 1,568 pounds ($1,988.38) a year for average use of electricity and gas is down 122 pounds, or 7%, from the previous cap of 1,690 pounds and at its lowest since the winter of 2021/2022.

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However, analysts at Cornwall Insight said the cap is expected to rise again in October because wholesale energy prices have begun to rise again.

The front-month wholesale British gas price has risen by about 30% since the beginning of April, LSEG data shows, partly owing to lower supply from Norway.

Cornwall Insight forecast the October cap at 1,762 pounds a year, up 12% from July.

“The anticipated rise in bills as we move into the winter months emphasises the continued volatility of the market and the importance of providing protection for vulnerable households,” said Cornwall Insight's Craig Lowrey.

Consumer groups warned that prices remain unmanageable for many households and called on the next government to provide better protection for vulnerable people.

British Prime Minister Rishi Sunak on Wednesday called a national election to be held on July 4.

Campaign group National Energy Action said that 5.6 million households would remain in fuel poverty despite the price cap reduction from July. Fuel poverty is defined as being unable to afford to heat homes to temperatures needed to stay warm and healthy.

About 28 million customers are on standard rate tariffs covered by the price cap, which was introduced in 2019 to protect consumers.

The cap is set using factors such as network fees and social and environmental costs as well as wholesale energy prices. It is updated every quarter to reflect changes to those costs.

($1 = 0.7886 pounds)

(Reporting by Susanna Twidale in London and Eva Mathews in BengaluruEditing by Philippa Fletcher and David Goodman)