Energy price cap predicted to increase by 5% in January

Energy consultancy Cornwall Insight has released its final prediction for the January to March 2024 Default Tariff Cap, commonly known as the energy price cap.

Following the conclusion of the observation period on 15 November, the forecast for a typical dual fuel household is set to increase by 5%, rising to £1,931.

This predicted increase will elevate the cap from the current figure of £1,834, placing additional financial pressure on consumers across the UK.

Cornwall Insight’s analysts also expect the cap to decline after March 2024, though this projection is cautious due to the unpredictable nature of wholesale energy markets.

The forecasted increase has been attributed to a combination of factors causing wholesale market volatility, including international events and their repercussions on energy supply chains.

Notable among these are the disturbances in the Finnish Balticconnector and the Israel-Hamas conflict, alongside industrial action in Australian gas production facilities.

The slight dip in gas prices due to the relatively mild weather offers a glimmer of hope that, if sustained, could lead to reduced bills in 2024.

Nevertheless, Cornwall Insight remains conservative in its expectations for significant price drops, given the myriad of market influences that remain in play.

Looking further ahead into the second quarter of 2024, the firm is also anticipating a rise in electricity standing charges.

April is expected to see an increase of 8p per day, a move driven by the reform of network charges which has reallocated a greater proportion of costs to a daily, rather than a unit, basis.

This means consumers will face these charges irrespective of their actual energy use.

Households and energy consumers are now awaiting the official announcement from the energy regulator Ofgem, scheduled for 23 November, which will confirm the energy price cap for the coming period.

This cap is a crucial indicator for many, as it dictates the maximum amount energy suppliers can charge for standard tariffs.

Dr Craig Lowrey, Principal Consultant at Cornwall Insight said:

“An unstable wholesale energy market, coupled with the UK’s reliance on energy imports, makes it inevitable that energy bills will rise from current levels. This leaves households facing yet another winter with bills hundreds of pounds higher than pre-pandemic levels, and affordable fixed deals few and far between.

“The King’s Speech acknowledged that it is our exposure to volatile international energy markets that has led to higher and less predictable bills. While we continue to advocate for immediate targeted support for vulnerable consumers, it is evident that the only enduring solution lies in transitioning the UK away from the influence of global energy prices towards sustainable, domestically sourced energy.

“The government’s commitment to attracting record levels of investment in renewable energy sources is a promising step, and ensuring they deliver on this pledge will be paramount in shaping a more stable and affordable energy future.”

Richard Neudegg, director of regulation at Uswitch.com, comments: “A week ahead of the price cap announcement, this is a firm prediction that energy costs will rise by 5% for households on standard variable tariffs in January.

“This price rise will come at the worst time of year for households, who will be using more energy at home during one of the coldest points of the winter.

“Consumers on standard variable tariffs are particularly exposed to fluctuations in the wholesale energy market, as the price cap now changes every three months.

“This quarterly price change is piling extra financial uncertainty on consumers, as it’s challenging to budget for a bill when rates can change so frequently.

“Fixed rate deals remain the only way that consumers can secure any certainty about what they will pay for energy for a year.

“Yet more still needs to be done by Ofgem to encourage suppliers to offer fixed deals more widely and at more competitive prices.

“The price cap is no longer fit for purpose, and the system needs reforming to create a more competitive market, which also protects households.”