Millions of households will see their energy bills rise this summer after Ofgem announced its new price cap.
The price cap is increasing by 13% to £1,862 a year for the typical dual fuel household that pays by direct debit from July. This marks an increase of £221, or £18 a month, based on the current price cap figure of £1,641.
Customers will see a smaller price increase of around 5% on their electricity bills compared to gas bills, which are rising by 24%.
The increase had been widely expected due to the war in Iran, which has pushed up global energy prices following the closure of the Strait of Hormuz.
Around a fifth of the world’s oil and liquefied natural gas (LNG) usually passes through this crucial waterway.
Ofgem updates its price cap every three months, so the new rates will remain in place until September 30, when it will then be revised again.
Tim Jarvis, Ofgem CEO, said: “Today’s price change reflects continued volatility in global energy markets. This means higher wholesale gas prices, driven by ongoing conflict in the Middle East, is impacting the price we pay for energy.
Richard Neudegg, director of regulation at Uswitch.com, said households can still save money by considering locking into a fixed energy deal.
He said: “No one wants to think about winter during hot weather, but fixing your energy deal now means you can opt out of these rises entirely.
“Households can currently lock in a rate that undercuts the July cap by around £250 for the average home. For anyone still on a standard tariff, your bill will go up unless you act.”
Despite what its name suggests, the Ofgem price cap does not put a limit on how much you can pay for energy – instead, it sets the maximum unit rates and standing charges.
The standing charge is a fixed fee you pay to be connected to the grid. This means your bill is still based on the amount of energy you use, and it can be higher or lower than the headline price cap figure.
The price cap figure represent what the typical billpayer can expect to pay, based on how much energy Ofgem estimates that the average household uses.
Your location can also effect your bill, as unit rates vary depending on region. There are also different rates for prepayment customers and those who pay on receipt of bill.
Confusingly, the energy price cap figure represents a yearly bill, but it is updated every three months so Ofgem can reflect changing wholesale costs.
The Ofgem price cap covers anyone on a standard variable rate (SVR) tariff. You are likely on an SVR tariff if you are not fixed into an energy deal.
There are about 33 million standard variable tariffs customer accounts, including six million with prepayment meters. You can contact your current energy supplier to see what type of tariff you are on.
But unusually, the savings announced today will also apply to fixed rate tariffs due to the change in policy costs.
If you are fixed rate customer, you do not need to do anything – your energy supplier will be in touch to outline the changes to your tariff.
Cornwall Insight predicts another 2% rise for the October price cap to £1,899 a year – and this would come just as temperatures fall and energy use rises.
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Dr Craig Lowrey, Principal Consultant at Cornwall Insight, said: “Even more concerning is October, where our forecasts are already pointing to a slight rise landing just as people start to turn their heating back on for winter.
“A lot of people assume that if the conflict in the Middle East ended tomorrow, prices would return to their pre-conflict levels fairly quickly.
“However, that may be overly optimistic. The damage to infrastructure, the disruption to supply chains and the erosion of market confidence will not unwind overnight, and the impacts could be felt in bills for longer than many expect”