Energy bills forecast to fall by 7% in the summer

Average annual bills will be £500 lower than a year ago by July

Regulators have introduced a series of reforms to energy supplier customer service of late (Jacob King/PA Wire)

PA Wire

Jonathan Prynn, Business Editor @JonPrynn

17 May 2024

The price cap on average household energy bills is expected to fall again this summer to £1574 a year, according to leading industry analysts.

Cornwall Insights said its forecast represented a 7% drop from the current level of £1690. Regulator Ofgem will announce the new price cap for the July to September quarter next Friday.

If Cornwall Insight’s predictions are right that will mean a drop in the typical gas and electricity bill of around 25% over the course of a year with prices down by around £500 from July 2023.

The cap was lowered by 12% to £1690 from April contributing to what is expected to be a big fall in the rate of inflation for the month. That will be revealed by the Office for National Statistics (ONS) on Wednesday and could even fall to as low at the Bank of England’s target rate of 2%.

Cornwall Insights said: “While a reduction in the price cap is good news, bills still remain hundreds of pounds above pre-crisis levels and concerns continue to be raised about the effectiveness of the price cap in bringing consumer costs down to more affordable levels for households.”

However, the cap is expected to rise slightly in October for the Autumn quarter before falling again in January 2025.

Predictions have seen a slight rise in recent weeks as gas and electricity prices rebounded from their 30-month lows in February before stabilising from mid-April. Cornwall Insights said this “reflects a combination of short-term market influences such as weather and supply availability, alongside longer-term drivers such as geopolitical concerns and raised oil prices.”

Earlier this year, Ofgem announced that it would undertake a comprehensive review of the cap and its structure.

Dr Craig Lowrey, Principal Consultant at Cornwall Insight said:

“When faced with headlines announcing minor changes to the cap it can be easy to overlook the broader trend of declines. 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 recognise lower prices don’t erase all the problems. The very fact we are still seeing bill levels which are hundreds of pounds above pre-crisis levels underscores the ongoing challenges faced by households.

“While the cap is certainly not the ticket back to long-term energy bill affordability, Ofgem’s review could pave the way for fairer, more efficient energy bills. However, given the breadth of reforms being considered by the regulator, it is worth remembering that such changes will inevitably lead to trade-offs.

“For example, reducing standing charges, while seemingly beneficial for low-energy us-ers, could lead to higher unit prices. This could disproportionately impact those in less energy-efficient homes or with greater energy needs, some of whom could be vulnerable. Finding the right balance is crucial.

“The path forward for energy pricing remains uncertain, and with stakeholders advocating for reforms – coupled with a general election on the horizon – energy bills are likely to be an area of continued debate and transformation in the months ahead.”

Richard Neudegg, director of regulation at comparison site Uswitch.com, said: “A predicted 7% drop in energy prices in July is clearly good news, with the price cap looking likely to hit its lowest level in over two years.

“The future still remains uncertain, and with the price cap changing every three months – currently expected to rise in October before falling slightly in January – it’s crucial not to be complacent.

“Households who want to lock in rates for price certainty should run a comparison to see what energy tariffs are available to them.

“There are many 12-month fixed tariffs available at rates cheaper than the current price cap, and even some that are 2% below these new predicted July rates.”

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