UK household energy bills could rise by almost £300 in January as the conflict involving Iran drives renewed volatility in international gas markets, according to a forecast that would represent the largest increase in the energy price cap for four years.
The average dual-fuel household bill is expected to reach £1,999 a year from January 1, up £276, or 16 per cent, from the level forecast for the final three months of this year, according to Cornwall Insight.
The consultancy said the increase was being driven by the conflict in the Middle East, which has disrupted energy markets and gas supplies after the Strait of Hormuz became effectively closed to shipping following the outbreak of the war in February.
European gas storage levels have fallen to their lowest September level for 15 years, Cornwall said, leaving markets more exposed to further disruption as the winter heating season approaches.
Dr Craig Lowrey, principal consultant at Cornwall Insight, warned that the combination of high prices, depleted storage and geopolitical uncertainty could prolong the pressure on households.
“These prices are going to hit households hard,” he said.
“January is already a difficult month for many, with cold weather and bank balances still recovering from Christmas, and now they face the biggest price cap rise we’ve seen in four years.
“At the moment, we can’t yet see an end to the volatility, and with gas stocks as low as they are, the effects of the conflict could be with us for many more months.”
The forecast comes as households prepare for a separate increase in energy costs from October 1, when Ofgem’s price cap rises by 4 per cent.
The increase will take the annualised bill for a typical household in England, Scotland and Wales paying by direct debit to £1,723, £60 higher than the previous level.
More than four million households on standard energy tariffs are expected to be affected, just as falling temperatures increase demand for heating.
Cornwall’s January estimate remains a forecast rather than a confirmed price cap. Ofgem will announce the official cap for January to March 2027 in November, meaning the eventual figure will depend on wholesale energy prices over the coming months.
The prospect of another sharp rise has nevertheless intensified pressure on the government to provide additional assistance to households struggling with energy costs.
Lowrey said the October 28 Budget could provide an opportunity for further support, alongside the government’s decision to remove VAT from household electricity bills.
“The Government is going to have to think carefully about the type and level of support that they make available,” he said.
The temporary removal of the 5 per cent VAT charge on household electricity, which takes effect on Thursday and runs until March 31 next year, is expected to save the average household about £45. Gas will continue to attract the 5 per cent levy.
The measure was among Burnham’s first announcements as prime minister and was presented as an immediate intervention to ease household costs.
Meanwhile, Uswitch has urged households without smart meters to submit meter readings to suppliers by the end of September, allowing bills to reflect energy used before the October cap change rather than applying the higher rates retrospectively.
Homes using average amounts of energy are expected to spend about £145 in October, compared with £109 in September, according to Uswitch. The increase reflects both higher unit prices and greater consumption as colder weather prompts households to turn on central heating.
National Energy Action chief executive Adam Scorer called for further targeted assistance ahead of winter.
“The Autumn Budget must deliver additional targeted support for households most at risk this winter, alongside action to tackle energy debt and improve the least energy efficient homes,” he said.
For households already facing higher costs, the forecast offers a fresh warning that the UK’s exposure to volatile international gas markets remains a major source of financial pressure well beyond the immediate impact of the October price-cap increase.
Leave a Comment