The saving could be shortlived (Image: Tatjana Aleksejeva via Getty Images)
Household energy bills are predicted to increase by 10% from July due to sharp rises in wholesale gas prices, fuelled by the escalating conflict in the Middle East, experts have cautioned. Analysts at Cornwall Insight stated that forecasts for Ofgem’s price cap for July to September had soared to £1,801 a year for a typical dual fuel household – an increase of £160 or 10% on April’s cap announced last week.
Little over a week ago, bill payers were informed that the reduction would result in an average decrease of £117 on what they paid each year. Now, due to global events, that relief appears set to last merely three months before bills skyrocket once more.
Cornwall described the rise as a “cause for concern” and cautioned that any increase would also impact electricity prices. However, it noted that the final price cap figure would be based on average wholesale prices over a three-month period, meaning that it would depend on how long gas prices remained high and how long the period of volatility persisted.
Wholesale markets have risen amid increased regional tensions in the Middle East. Following US and Israeli missile strikes on Iran, retaliatory attacks from Iran damaged oil and gas infrastructure across key Gulf states.
QatarEnergy has been compelled to halt production of liquified natural gas (LNG) at several sites affected during Iran’s response. Iran has also warned ships against using the Strait of Hormuz, a crucial shipping route for approximately 20% of global oil and gas, adding further strain to global energy markets.
Events of recent days have seen wholesale prices rise (Image: John Lamb via Getty Images)
Read more: Weight loss jab users warned they could be ‘worse off than before’
Read more: Key HMRC update with deadline ‘in weeks’ before limit slashed
While Europe and the UK do not depend significantly on Qatari LNG, diminished supply will impact major Asian buyers such as Japan, South Korea and Pakistan, meaning rivalry in the global market is anticipated to heighten, driving prices upwards.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “Looking at the April cap, the role of wholesale prices as a determinant of bills had eased, given the impacts of policy costs and network costs. However, this latest forecast puts the role of wholesale markets firmly back in the spotlight and illustrates how exposed UK households remain to international market movements.
“While the rise is eye-catching, any immediate concern should be tempered. We are still early in the assessment period for the July cap and what happens in the energy markets over the next three months will be the key factor, rather than this spike alone.
“Events like this reinforce the case for greater home-grown renewable generation. Reducing the UK’s reliance on volatile global gas markets is the most durable way to protect households from future price shocks.”
Addressing the Energy Security and Net Zero Committee on Wednesday, Ofgem chief executive Jonathan Brearley told MPs: “Clearly, as we saw in the Russia–Ukraine conflict, our gas supply cannot be separated from global events. It’s important to make clear that our energy supplies remain secure.
“Britain continues to benefit from a diverse gas supply, which provides the market with the flexibility it needs in times of disruption. In the short term until the end of June, customers will be on fixed tariffs or protected by the price cap.”
He continued: “Although we remain at the early stages of this conflict, if the Strait of Hormuz remains closed for a prolonged period of time it is likely this will create significant upward pressure on prices that customers will pay for their gas and electricity.
“For example, in electricity, gas still sets the price for the majority of the time. Now I know already there is a great deal of speculation about the scale and extent of those price changes. But, genuinely, it is too early to tell.
“In my experience, gas traders find it extremely difficult to calibrate the sorts of risks we are facing, and therefore market projections are not a reliable guide to the future.”
Simon Francis, co-ordinator of the End Fuel Poverty Coalition, said: “If these forecasts prove correct, the increase would wipe out the modest savings delivered by the budget and pile even more pressure onto families already struggling with high bills and record levels of energy debt. The price cap may smooth out sudden spikes, but as long as the system remains tied to volatile global gas markets, households will continue to feel the impact of every international shock.”
A representative for the Department for Energy Security and Net Zero said: “This is highly speculative. Using short-term wholesale price fluctuations to predict what will happen in the next few months is not reliable.
“The price cap is fixed until the end of June and energy bills for households will go down for its three-month duration thanks to government action. The only way to protect ourselves from these price spikes is to get off the rollercoaster of fossil fuel markets.”