Price Cap: Energy costs for most households set to fall by 18% from July

Energy costs for most British households are expected to fall around 18% from July with regulator Ofgem poised to announce a cut in its price cap next week.

Energy consultant Cornwall Insight has projected a decrease in the Q3 2023 Default Tariff Cap, dropping to £2,053 for a typical household, down £1,227 from the April cap of £3,280.

The price cap does not currently apply due to help for energy bills from the government.

However, the Energy Price Guarantee (EPG), which limits a typical household’s energy bill to £2,500 equivalent per year will end in June.

Household bills will revert to the price cap from then.

It means households on direct debit energy bills are likely to pay around 18% less for gas and electricity from 1 July, according to Martin Lewis.

FINAL JULY ENERGY PRICE CAP PREDICTION (feel free to share)

The assessment period for the July price cap ended yesterday. Here’s @CornwallInsight‘s final prediction – a drop of 18% (so every £100 cost now will be £82 from July). I can’t see it being more than a couple of percent… pic.twitter.com/EhZVPNO7V5

— Martin Lewis (@MartinSLewis) May 19, 2023

Despite the significant decrease, energy prices remain substantially above pre-pandemic levels.

Cornwall Insight believes bills won’t return to pre-2020 levels until the end of the decade, at the earliest.

“This comes amid concerns over the continued volatility of wholesale energy markets and potential geopolitical influences on energy prices.” The consultant said.

Ofgem announcement 

The Q3 prediction, scheduled to be officially announced by Ofgem on 25 May, is based on data up until the observation window closure on 18 May.

From July, household bills will reflect the new price cap, currently restricted to £2,500 per year by the Energy Price Guarantee (EPG).

As prices stabilise, more competitive fixed-rate energy tariffs may re-emerge, offering consumers additional ways to manage their energy costs.

“Cautious optimism that the era of exceptionally high energy bills is behind us,” said Dr Craig Lowrey, Principal Consultant at Cornwall Insight. “Under these predictions, an average consumer would see bills drop by around £450 compared to the existing levels of the Energy Price Guarantee, with bills currently predicted to stay relatively stable over the next nine months.”

Richard Neudegg, director of regulation at Uswitch.com, said: “This latest prediction is promising news for households with energy prices set to head in the right direction.

“If the price cap falls to around this level, it will be lower than the Energy Price Guarantee. This means that the cost of a standard variable tariff will once again be dictated by Ofgem and reviewed every three months.

“We’ll wait to see the confirmed price cap level when it’s announced on Thursday, but this should give suppliers the confidence to start bringing back fixed energy deals for customers.

“When deals do become available, consumers will need to decide if they want to lock in rates for a longer period, rather than risk the volatility of the standard variable tariff.

“One in two consumers have told us they’d choose a fixed tariff to give them more certainty on their energy costs, so it’s vital that they’re now given back that option.”