Wholesale gas prices at last feed through to lower energy bills, but consumers still face bills up 80 per cent up on pre-crisis levels this year.
Ofgem’s announcement today that the energy price cap will fall to £2,074 on 1 July still leaves bills far higher than they were pre-crisis, but marks the welcome moment when falling wholesale gas prices start to benefit consumers, the Resolution Foundation said today (Thursday).
The latest price cap is a decrease of over £1,000 since the April cap (£3,280), and the first time the cap has fallen below the Energy Price Guarantee (which rises to £3000 from July) since last September.
The savings from the lower price cap in July-September amounts to £1.5 billion for consumers, but an even bigger £2.8 billion for the Treasury (which currently pays for energy costs over the equivalent of £2,500 for the typical household bill) compared to if the price cap had remained at £3,280.
The Foundation notes that falling energy bills are projected to bring inflation down by 2.7 percentage points by July compared to the start of 2023, reducing overall inflation by over a quarter this year.
However, while a fall in energy bills is welcome news for struggling families, wholesale gas prices from October 2023 to March 2024 are forecast to remain three times as much as they were between 2015 and 2020. Expected energy costs for a typical household for 2023-24 are now expected to be around £2,100 a year, or 80 per cent higher than were before the crisis.
Emily Fry, Economist at the Resolution Foundation said:
“Ofgem’s announcement today that the price cap will fall to £2,074 from July marks the welcome shift when falling wholesale gas prices at last feed through to falling household energy bills.
“Expected energy costs for a typical household this year are now on course to be around £2,100 – still up by almost 80 per cent on what families were used to pre-crisis.
“A return to the level of bills households paid pre-crisis isn’t arriving anytime soon. The case for developing more sustainable support with energy bills, such a social tariff for vulnerable households, therefore remains strong.”