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Britain’s household energy price cap is forecast to fall by 15 per cent from April to its lowest level in two years in a boost to efforts to bring inflation under control.
Analysts at Cornwall Insight said on Friday that they expected regulator Ofgem to lower the cap, which governs the amount a typical household pays for gas and electricity, to £1,635 per year in the second quarter from £1,928 in the first three months of the year.
The sharp reduction — due to a big drop in wholesale gas and electricity prices since November — would bring the price cap down to its lowest level since March 2022 when it stood at £1,216.
Soaring energy prices, linked to Russia’s full-scale invasion of Ukraine in February 2022, have been a big contributor to a sustained period of high inflation.
The price cap peaked at £4,059 in the first quarter of last year. Since then inflation has receded sharply, hovering at 4 per cent in January, with falling energy prices helping drive the retreat.
The Bank of England expects the declines to continue, with its latest forecasts pointing to inflation hitting its 2 per cent target in the second quarter of this year, before a slight rebound.
Some analysts predict steeper declines with the National Institute of Economic and Social Research forecasting inflation will hit just 1.5 per cent in April.
Ofgem will officially confirm the energy price cap for the second quarter on Friday but it is now too late for fluctuations in the wholesale markets to affect the regulator’s calculation, meaning Cornwall Insights’ estimates should be close to the mark.
The April price cap is still more than £400 higher than typical levels before the energy crisis, however, and many households are struggling to pay their bills after the government stopped universal support.
Jess Ralston, analyst at the Energy and Climate Intelligence Unit, said bills falling would be a “relief to many struggling households” but warned the country “may not be out of the woods yet” as it still relies heavily on natural gas and is therefore vulnerable to future price shocks.
The forecast fall in the price cap level reflects lower wholesale prices, with Britain’s benchmark gas prices down 40 per cent since late November, despite tensions in the Red Sea disrupting shipments of liquefied natural gas to Europe.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “Fairly healthy gas supply across the Atlantic, coupled with high storage levels in Europe, are helping to keep bills down.
“But we mustn’t get too complacent. Our energy system is still walking a tightrope, and we cannot be sure another political or economic crisis won’t send bills straight back up.”
Cornwall Insight estimates the cap will fall further to £1,465 from July before climbing to £1,524 in October.
The price cap, introduced in 2019 to protect consumers, sets a cap on the unit rate of electricity and gas.
Additional reporting by Shotaro Tani
Source: Economy - ft.com
