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‘Fresh shock’ for British households as energy bills expected to hit £4,420 in 2023

According to the latest forecasts, household energy bills in Britain could reach an average of more than £4,420 a year next spring, which would be a “new shock” to households already concerned about the cost of living.

Energy consultancy Cornwall Insight raised its forecasts for the UK price cap on Tuesday following an announcement by energy regulator Ofgem of controversial changes to the way the level is calculated.

The latest forecasts are likely to put new pressure on Conservative party leaders Liz Truss and Rishi Sunak to increase support for households this winter.

The opposition Liberal Democrats have called for the next price cap hike, scheduled for October 1. not be passed on to the consumer — with the difference financed by an increase in the recently imposed windfall tax on oil and gas producers by the government. Oil and gas companies, including BP and Shell, have made huge profits from the high prices.

Cornwall Insight, one of the most accurate forecasters of UK domestic energy bills, warned that the price cap could rise from an average of £1,971 a year right now to £3,582 in October – an increase of more than 80 percent. The cap would then rise to £4,266 in January, before peaking at £4,427 in April next year, according to estimates.

The UK energy price cap dictates a maximum that suppliers can charge per unit of energy and also limits their profit margins. It affects the vast majority of households in the country – about 24 million out of an estimated 27.8 million – who do not have fixed-price deals. The October price cap will be announced by Ofgem on August 26.

Cornwall Insight has sharply revised its estimates upwards as a result of methodological changes Ofgem announced last week, allowing energy suppliers to recover the full cost of buying energy for their customers for the coming winter at today’s high wholesale prices. Before the changes, Cornwall Insight had predicted that the ceiling would be around £3,600 a year in January.

Ofgem insisted it should change the price cap to prevent another slew of energy company collapses. More than 30 energy retailers have gone bankrupt since January 2021. The cost of tackling these outages is expected to exceed £4 billion, which will be recouped through a levy on household energy bills.

Investec was the first to warn last week that Ofgem’s adjustments could force the January price cap to more than £4,200 a year on average, though the regulator at the time insisted the forecast was “far from” its own “working estimate” of where the price cap could be early 2023.

Ofgem said in response to the Cornwall Insight figures that “the wholesale market continues to evolve extremely quickly, so no forecast for next year is completely robust”.

“We cannot prevent others from making predictions, but we do ask that extreme caution be exercised when forecasting the price cap in January or beyond,” the regulator added.

Craig Lowrey, principal consultant at Cornwall Insight, acknowledged that the latest forecasts would come as a “new shock” to households already worried about how they will make ends meet this winter.

He suggested that it “may be time” to completely rethink the energy price cap. “If it doesn’t control consumer prices and hurt suppliers’ business models, we have to question whether it’s fit for purpose – especially in these times of unprecedented energy market conditions,” he said.

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