- Electricity and gas bills fell by up to 31% in the year to November 2023
- Inflation figures reveal surprising drop in energy bills, but this may be a one-off
- Experts say most households will pay around £1,900 a year for at least 12 months.
Gas and electricity prices have fallen by up to 31 per cent, according to the latest inflation figures, but experts have warned there is no end in sight to high energy bills.
The average household with an Ofgem price cap deal has paid £1,843 a year for gas and electricity since October 1, up from £2,074 previously.
But the latest inflation figures from the Office for National Statistics (ONS) show electricity bills fell by 15.6 per cent in the year to October 31, 2023, while gas bills fell by 31 per cent. .
The drop in energy bills was so large that it helped drag the overall level of inflation from 6.7 percent to 4.6 percent.
Don’t rush: Energy prices have fallen, but will likely stagnate over the next 12 months
Much of the fall is due to Ofgem’s lower price cap from 1 October, which fell by £243 a year. This measure reduced the rate paid for energy in more than 80 percent of homes.
ONS chief economist Grant Fitzner said: “Inflation fell substantially during the month, as last year’s sharp rise in energy costs was followed by a small reduction in the energy price cap this year.” .
The ONS calculates these prices by looking at the unit rates and ongoing charges of the most popular energy deals from all the big energy companies.
It then calculates the average annual deal cost, assuming typical gas and electricity usage, adds other weighted averages, and boils it all down to get typical prices.
Many energy companies are also starting to bring back cheaper fixed tariffs, although in small amounts, and mainly for existing customers.
Does this mean energy bills will continue to go down?
Unfortunately, experts say consumers shouldn’t hold out hope for huge drop in energy bills anytime soon.
Why have I seen two figures for Ofgem’s price cap?
- There are two figures for average energy usage for the October 1 price peak: £1,923 and £1,834.
- The reason is that since October 1, Ofgem not only changed the price cap but also what it calls average energy consumption.
- This is because consumers have been using less energy than the regulator thought.
- Using the old assumptions, the maximum price fell from £2,074 a year to £1,923 on 1 October.
- The figure of £1,834 is much lower than £1,923, but it does not mean that consumers are magically being charged much less than they were.
Firstly, the massive drop in energy bills reported by the ONS is mainly due to average prices falling from £2,500 a year per household in October 2022 to £1,843 today.
The £2,500 figure was the annual limit set by the Government for the average household through its Energy Price Guarantee, which rose to £3,000 this summer.
But the actual amount paid was lower, with people receiving £400 in support for their Government energy bill between October 2022 and March 2023.
This year it is no longer available.
Energy bills are now expected to be around £1,900 a year for at least a year.
Second, despite the dramatic recent decline, the price of energy remains very high compared to historical norms.
The ONS said: “Although electricity and gas prices have fallen month-on-year, their prices remain high compared to recent years.
“The gas price in October 2023 was around 60 percent higher than in October 2021, while the electricity price in October 2023 was around 40 percent higher than in October 2021” .
Third, further massive drops in energy bills are unlikely in the foreseeable future.
Energy experts at Cornwall Insight, which has predicted the level of Ofgem’s price cap with a reasonable degree of accuracy since prices began to rise in late 2021, believe household energy bills will not fall significantly in 2024.
Cornwall Insight’s latest predictions are that Ofgem’s cap price will rise from £1,834 now to £1,923 in January, an increase of £89 a year.
From April 2024, Cornwall Insight believes the maximum price will rise slightly to £1,929, then fall to £1,879 in the third quarter of 2023 and rise again to £1,916 in the last three months of 2024.