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UK households 'set to pay £500 less on energy bills than forecast' as gas prices drop

energy bills MBARGOED TO 0001 WEDNESDAY JANUARY 26 Undated file photo of a person using a central heating thermostat, as a report has suggested deploying heat pumps and boosting energy efficiency should be the priority for home heating in the next decade, rather than hydrogen.
Warm weather in Europe and high gas storage levels have led to suppliers seeing falling wholesale prices, which could lead to lower energy bills. Photo: Getty (PA)

A fall in wholesale gas prices is forecast to lower the average household energy bill by £500 a year in the second half of 2023.

The price cap, which dictates energy bills for the majority of UK households, is likely to fall to £2,640 a year in July, according to wealth management firm Investec.

That is nearly £500 less than their previous forecast of about £3,100 per year.

Martin Young, energy analyst at Investec, said falling wholesale energy prices were behind the lower forecasts.

Warm weather in Europe and high gas storage levels have led to suppliers seeing falling wholesale prices.

“Households would also benefit, but prices remain elevated versus historic levels, and with other bills rising, the cost of living crisis remains real and devastating for many,” Young said.


Read more: UK mortgage approvals at lowest since pandemic

Another forecaster, energy consultancy Cornwall Insight, also released its own revised price cap estimates, forecasting that the typical annual bill could fall to £2,800 in the summer.

"We must remain cautious as the government has essentially been underwriting a volatile wholesale energy market ⁠— one which is likely to remain unstable throughout the year," said Craig Lowrey, principal consultant at Cornwall Insight.

"Even if energy prices continue at current levels ⁠— which is a big if ⁠— the costs to the government over the full period of the energy price guarantee are still contributing to government borrowing and will ultimately fall at the feet of consumers in the form of higher taxes."

Both estimates are lower than the government's energy price guarantee. The guarantee means a typical household won't pay more than £2,500 per year this winter, but that is due to rise to £3,000 from April.

Meanwhile, UK chancellor Jeremy Hunt told business leaders in a meeting that the current level of energy support is “unsustainably expensive” and that the current £18bn scheme was always limited to six months.

Any future support, while at a lower level, will be designed to avoid a cliff edge.

The Treasury will announce the outcome of the review of the energy bill relief scheme in the House of Commons next week.

Read more: What to expect from the pound in 2023

"No government can permanently shield businesses from this energy price shock," the Treasury said in a statement.

It added: "The chancellor was clear that this level of support is unsustainably expensive and that the current scheme was always time limited to six months.

"Extending the scheme at current levels could cost tens of billions of pounds, with costs potentially doubling or tripling if international energy prices increase further than expected. It is vital that taxpayer’s exposure to volatile international energy prices is reduced.

"However, the chancellor also heard the concerns of the business community who are facing high energy prices and explained that any future support, while at a lower level, would be designed to help them transition to the new higher price environment and avoid a cliff edge in support."

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