Energy price cap forecast to rise by 4%

UK – Cornwall Insight has forecast that Ofgem’s default-tariff energy price cap will rise by 4% to £1,729 a year for a typical dual-fuel household paying by direct debit from 1 October.

The figure is a forecast, rather than an announced cap level. Ofgem is due to publish its cap for 1 October to 31 December by 26 August.

The £1,729 estimate uses Ofgem’s revised typical domestic consumption values of 2,500kWh of electricity and 9,500kWh of gas a year. It compares with the current £1,663 annual figure for July to September on the same basis. Cornwall Insight said the projected level would be the highest since July 2023 on a like-for-like, unit-for-unit basis.

For comparison with the previous consumption-value methodology, Cornwall Insight put the October to December figure at £1,941, against a current equivalent of £1,862. The two series should not be compared directly because Ofgem changed the typical consumption assumptions in July.

Cornwall Insight’s forecast national-average rates for dual-fuel direct-debit customers are 26.57p/kWh for electricity, with a standing charge of 55p/day, and 7.90p/kWh for gas, with a 31p/day standing charge.

The consultancy attributed the expected increase principally to international gas market conditions, including uncertainty surrounding the US-Iran conflict, low European gas-storage levels for the season, Norwegian production outages and strong Asian LNG demand. It also cited elevated gas demand for cooling during Europe’s heatwave, alongside changes to Ofgem’s cap methodology.

Planned VAT reduction

The projected figure includes the Government’s planned reduction in VAT on domestic electricity bills from 5% to zero from 1 October for the 2026-27 financial year. The Government estimates the measure will cut a typical annual bill by about £45, but Cornwall Insight said wholesale-market movements outweighed the saving in its forecast.

For the heating sector, the forecast underlines the continuing exposure of gas-heated homes to wholesale gas prices. The Energy and Climate Intelligence Unit has separately argued that faster deployment of electric heat pumps would reduce dependence on imported gas for home heating.

Ofgem’s cap limits unit rates and standing charges, rather than a household’s total bill. Actual costs continue to depend on consumption, region, payment method and meter type.