Table of Contents
- Ofgem price cap to fall 7% in July, expert analysts believe
- Typical households will continue to face high energy bills despite welcome drop
The average household energy bill is expected to reduce by £116 in July, but will exceed £1,500 a year.
A typical household currently pays gas and electricity bills of £1,690 a year, the level of Ofgem’s maximum price.
The price cap caps bills paid by the more than 80 per cent of the country’s households who have variable rate energy bills, paying by direct debit.
The maximum price is now expected to fall by £116 (or 7 per cent) to £1,574 a year from July 1, for average usage, according to analysts at Cornwall Insight.
This is slightly higher than the £1,560 bill Cornwall Insight had originally predicted.
However, it still marks a slow overall downward trajectory for energy bills. The average price-capped bill was £2,074 a year last July.
Energy regulator Ofgem is responsible for setting the cap price, which caps daily charges as well as unit rates for gas and electricity used in variable tariff arrangements.
Ofgem does not speculate on the future of its price cap, but Cornwall Insight’s predictions have historically been fairly accurate.
Cornwall Insight then believes that the maximum price will rise to £1,636.44 in October and rise slightly again to £1,634.20 in January 2025.
Craig Lowrey, principal consultant at Cornwall Insight, said: “Our projections suggest that from July, the average annual bill will fall by around £500 compared to last summer, offering further relief given the quarter-on-quarter drop seen in April. .
‘Of course, we must recognize that lower prices do not erase all problems.
“The very fact that we continue to see bill levels that are hundreds of pounds above pre-crisis levels underlines the current challenges that households face.”
Ofgem changes the maximum price four times a year.
Richard Neudegg, head of regulation at Uswitch, said: “An expected 7 per cent drop in energy prices in July is clearly good news, with the price cap likely to hit its lowest level in more than two years”.
What is Ofgem’s maximum price?
The price cap was introduced in January 2019 to prevent energy companies from overcharging customers on variable rate tariffs.
Most households were on fixed-rate energy deals at the time and only moved to variable-rate tariffs if they did not renew at the end of their term.
Why is the maximum price so important now?
After energy bills began to rise in late 2021, gas and electricity companies responded by pulling all new fixed-rate agreements from the market.
They did this to try to avoid the widespread collapse that affected many energy companies, which were suddenly forced to sell energy for much less than it cost them to buy it.
Because cheap fixed rate deals had all but disappeared, almost all homes ended up on variable rates regulated by Ofgem’s price cap.