Average gas and electricity bills will rise by £111 a year in April after the regulator Ofgem announced an increase to the energy price cap. The 6.4 per cent hike means the average dual-fuel household bill will hit £1,849 annually.
The rise is more than anticipated, with analysts at Cornwall Insight predicting that bills would rise by just 5 per cent in April. Ofgem blamed inflation and ‘rising global wholesale prices’ for the bigger-than-expected increase. As a result, the cap will be £159 (nearly 10 per cent) higher than for the April to June period last year.
The rise in energy prices is why the Bank of England recently forecast inflation to return to nearly 4 per cent this summer. As Kate Andrews reported last week, inflation in January rose to 3 per cent, up from 2.5 per cent at the end of last year – a bigger jump than the Bank of England and markets had expected. The higher-than-forecast energy cap rise today possibly means the Bank’s forecast for inflation to peak at 3.7 per cent could be an underestimate: prices may end up rising as much as 4 per cent before coming back down again.
Although energy price rises were inevitable, they still hurt. Homeowners and bill payers accept that international crises – the effects of Covid, the war in Ukraine and troubles in the Middle East – make energy more expensive. But what’s hard to stomach is how much Britain pays for energy compared to anywhere else in Europe. The latest international comparisons produced by the Department for Energy Security and Net Zero show that the UK is paying more than any other major developed economy for both domestic and industrial energy. Our cost per unit of domestic energy is nearly 80 per cent higher than the French, almost double Poland’s and more than seven times larger than Turkey’s.
Today’s news is bad for homeowners for another reason: it won’t improve chances of another cut to interest rates by the Bank. After last week’s inflation news, traders are now betting on rates only falling to 4 per cent – from the 4.5 per cent they sit at now – and remaining there for the foreseeable future.
With energy bills rising, and no relief in sight on interest rates, households will continue to feel the squeeze. Britain’s uniquely high energy costs raise difficult questions about Britain's energy policy. the Department for Energy Security and Net Zero's name is something of a contradiction: we can have energy security, or we can unilaterally race to net zero, but we probably can’t have both.
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