Yahoo Finance Energy price cap could hit £3,000 as Ukraine crisis sends oil and gas soaring
The energy price cap could climb as high as £3,000 in October as the crisis in Ukraine sends the price of oil and gas soaring.
Martin Young, an energy analyst at Investec, warned in a note sent to City clients today that Brits could face “devastating” rises in their energy bills if wholesale prices remain at their current levels.
He said: “The jump in electricity and gas prices of recent days has sent our October tariff cap estimate soaring above £3,000.”
The price cap is set to rise to £1,971 in April, a 54% rise on current levels. A rise to £3,000 at the next review date would be another 52% rise. Bills would have more than doubled in just 12 months.
Young said: “Absent sharp and significant declines in wholesale prices, we expect a significant jump in the cap in October. This could be devastating for UK households with elevated fuel poverty, and an ‘eat or heat’ dilemma.”
Electricity prices surged by 30% today after Russia launched a full assault on Ukraine overnight. Oil has also risen above $105 a barrel for the first time since 2014.
Higher oil and gas prices are likely to filter through into higher household energy bills at the next review of the energy price cap. It will also mean higher fuel prices at the pumps for motorists. Average UK petrol prices hit a new all-time high on Wednesday, according to the RAC.
Petrol prices, heating bills and the price of everything from bread to cereal is likely to rise due to the war in Ukraine as the conflict disrupts the supply of goods from the region.
One of the City’s top economists has warned that UK inflation could top 8% later this year. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, wrote on Twitter: “Today’s surge in oil, natural gas and elec[tricity] prices, if sustained, points to an extra 1.5 percentage point boost to the U.K. CPI.
“CPI inflation now likely to peak at c.8.2% in April and only come down to 6.5% by the end of the year. Hard to see how households’ real spending keeps rising.”
Inflation is currently running at 5.5% and the Bank of England expects inflation to peak at 7.25%.
Tombs has been ranked the most accurate forecaster in the UK for the last two years running by data provider Refinitiv and is highly regarded in the City. He is not alone in predicting inflation above 8%: Thomas Pugh, an economist at RSM UK, warned earlier this week that a full-scale invasion of Ukraine could push price rises to that level.
Economists are warning that conflict in Ukraine is also likely to drive up the price of bread, cereal and other foodstuffs. Between them, Russia and Ukraine export a quarter of the world’s wheat. Wholesale market prices surged today.
Russ Mould, investment director at AJ Bell, said: “The surge in the oil price is terrible news for businesses and consumers, and fundamentally this clarifies one of the key impacts of the Russia/Ukraine war – it will serve to further stoke inflation.”
