The energy price cap in Great Britain is expected to fall by 14% in April because of cheaper oil and gas prices, according to an influential forecaster – although disruption to shipping in the Red Sea has added uncertainty to its prediction.
The average annual electricity and gas bill should fall by about £268 to £1,660 in April, Cornwall Insight said. The independent research company copies the methods used by the industry’s regulator, Ofgem, in analysing energy markets to calculate its predictions for the cap.
The anticipated fall in the price cap next spring is a further sign that Britain’s two-year cost of living crisis is easing, after official figures today showed the annual inflation rate dropped to 3.9% in November, from 4.6% in October.
Energy markets have been roiled in the last two years by crises, starting with the coronavirus pandemic followed by Russia’s invasion of Ukraine.
Global wholesale energy prices had fallen significantly since the last price cap announcement in late November, when Ofgem raised the quarterly cap, which is due to kick in on 1 January, by 5% to £1,928.
However, oil prices have rebounded somewhat in recent days, in part because of attacks on commercial vessels passing through the Suez canal, a vital shipping route that carried about 4% of global seaborne oil in 2020, according to the data company Kpler.
The attacks were carried out by Houthi rebels who control the west of Yemen and say they are responding to Israel’s bombardment of Gaza. A US-led coalition has pledged to protect shipping in the area but many ships have been diverted around southern Africa.
Craig Lowrey, a principal consultant at Cornwall Insight, said: “Unexpected global events can lead to spikes in energy prices. Whether concerns in the Red Sea become heightened, or another potential disruption to supply occurs, there are no guarantees the price cap will not rise again.”
In Great Britain, Ofgem’s price cap has directly set bills for the vast majority of households since the start of the energy crisis. Although expressed in terms of an average annual bill, the price cap is in fact a top rate that companies may charge for gas or electricity, meaning households could pay more or less depending on their total usage.
Despite the risks from global events, Cornwall Insight is forecasting further declines in the price cap, in part because Europe has large stores of methane gas left during another relatively mild winter. That has left Europe less vulnerable to shortages that could drive prices higher.
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Cornwall Insight said it expected the price cap to drop to £1,590 in July before a slight increase to £1,640 from next October.
Lowrey said the forecasts of price cap dips from April “may offer a small light at the end of the tunnel” for UK households who are hard-pressed during the cost of living crisis.
However, he added that there was further uncertainty for households as the regulator decides on changes to rules on standing charges – which are levied even on households that use no energy – and debt collection, after a scandal over the allegedly brutal treatment of customers by agencies.
