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UK household energy subsidies could hit zero later this year -Cornwall Insight

Row of electricity pylons near Ellesmere Port

LONDON (Reuters) - A rapid drop in wholesale energy prices following a milder than usual winter means Britain's subsidy scheme to help households with costs could be paying out nothing in the second half of the year, analysts said on Thursday.

If maintained the drop could save the government billions of pounds at a time when it is under pressure to resolve a series of disputes about pay among public sector workers including nurses, ambulance drivers and teachers.

The government has guaranteed to keep average household energy bills below 2,500 pounds ($3,086) a year until the end of April and below 3,000 pounds until March 31, 2024.

Following the wholesale price slump analysts at Cornwall Insight forecast average annual energy bills, under a cap set by regulator Ofgem, will fall to around 2,201 pounds a year in July and reach 2,241 pounds a year in October.

If the Ofgem price cap falls below the government's guarantee it means the government does not need pay out subsidies the analysts have previously forecast could cost 38-42 billion pounds over the 18 month life of the scheme.

“With wholesale prices still well above pre-pandemic levels, the lower cost of the scheme is likely to spark conversation on the additional energy bill support the government may now be able to offer households,” the analysts said.

British wholesale gas prices, which soared to record highs last year, have fallen around 75% since last August when they hit a peak over plummeting supply of Russian gas to Europe following Russia’s invasion of Ukraine.

Prices however remain historically high, meaning consumers are unlikely to feel much better off.

"The cap predictions for April remain nearly three times what a typical household was paying pre-pandemic,” Craig Lowrey, Principal Consultant at Cornwall Insight said.

($1 = 0.8102 pounds)

(Reporting By Susanna Twidale; Editing by Kirsten Donovan)