UK households are facing a renewed cost-of-living squeeze after energy bills rose again, with forecasts suggesting the typical annual bill could approach £2,000 in January as the conflict in the Middle East drives up wholesale gas prices.
The latest 4 per cent increase in Ofgem’s energy price cap took effect on Thursday, lifting the annualised bill for a typical household in England, Scotland and Wales paying by direct debit to £1,723.
But the immediate increase risks being overshadowed by a much larger rise expected in the new year.
Cornwall Insight forecasts that the price cap could increase by 16 per cent on January 1 to £1,999 a year. That would represent an increase of £276 over the October-December level and the biggest rise since January 2023.
The forecast reflects renewed pressure on wholesale gas markets following disruption to supplies linked to the escalating conflict in the Middle East. The Strait of Hormuz, a crucial route for global energy shipments, has effectively been closed since the Iran war began in February.
More than four million households remaining on standard energy tariffs are directly exposed to the latest increase.
The government has attempted to cushion the impact by temporarily removing the 5 per cent VAT charge on electricity bills until March 31 next year, a measure expected to save households about £45 a year. Gas bills will continue to carry VAT at 5 per cent.
Prime Minister Andy Burnham said the government recognised the immediate pressure facing households.
For many families, the energy bill is the one they dread the most. I don’t accept that it has to be this way, and I am determined to bring down costs for good,” he said.
“But I know people can’t wait. Families need breathing space now.”
The renewed pressure comes as campaigners warn that more households could be pushed into fuel poverty during the winter.
The End Fuel Poverty Coalition has called for an “emergency heat tariff” to cap heating costs, citing a 27 per cent annual increase in gas prices.
Simon Francis, the coalition’s co-ordinator, said: “With the number of households in fuel poverty set to soar again and at the most dangerous time of the year, the Chancellor has no choice but to act to provide increased targeted support to vulnerable households and plan to deliver wider universal help for people facing a sixth winter of high energy prices.
“If ministers do nothing, millions will spend this winter in cold, damp homes, unable to cook a hot meal. People will get ill. Some will die.”
Energy UK also warned that wholesale gas prices had reached a three-year high, while energy debt was expected to reach £7 billion by the end of 2026.
Ned Hammond, the organisation’s deputy director of customer policy, said urgent action was needed to support households most exposed to rising costs.
The UK’s continued reliance on international gas markets leaves both households and businesses exposed to global price volatility,” he said.
The combination of higher energy prices, rising household debt and renewed geopolitical disruption risks extending Britain’s cost-of-living pressures into another winter, leaving ministers facing renewed demands to provide immediate relief while addressing the country’s longer-term dependence on volatile international energy markets.
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