UK Energy Bills to Rise in Sign of Continuing Inflation Risk

The UK energy price cap will rise in January, a signal that the inflationary impact the measure is having is set to continue.

(Bloomberg) — The UK energy price cap will rise in January, a signal that the inflationary impact the measure is having is set to continue.

The cap, measured every three months by the regulator Ofgem, will increase to by 1.2% £1,738 ($2,182.2) from Jan. 1, according to figures published on Friday. 

The hike marks the first time since the height of the energy crisis that bills have risen for two consecutive periods. Wholesale prices are up about 50% this year as Russia’s war on Ukraine intensifies, adding to fears about global security of supplies.

“As long as Britain remains exposed to the roller coaster of global fossil fuel markets, we will be vulnerable to energy price rises over which we have no control,” Secretary of State for Energy Security and Net Zero Ed Miliband said.

Rising costs will make it even more difficult for the government to fulfill the election promise to lower bills as well as providing a headache for the Bank of England as it tries to keep inflation in check.

The hike in bills comes at what is usually the coldest part of the winter. Campaign groups have been pushing for extra support from the government for vulnerable customers.

“With temperatures now plunging and far less support available many are getting deeper into debt trying to keep warm. Now we know there will be no let up into January and beyond,” said National Energy Action Chief Executive Adam Scorer. “Targeted government support is essential to save millions from the misery and danger of a cold home.’

The government has already had to ride out its unpopular decision to cut winter fuel allowance for some pensioners.

The increase in the energy price cap in October drove inflation to 2.3% from 1.7%, the Office for National Statistics said this week. The contribution from energy costs to consumers rose to it’s highest level since 2022 and the Bank of England expects the rate to reach almost 3% by the third quarter of next year with energy bills playing a part.

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The Ofgem price cap, which represents an annual bill for a typical household, is largely a reflection of wholesale power and gas prices. The latest increase is mostly due to global dynamics in gas markets linked to geopolitical risks in the war in Ukraine.

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“Our reliance on volatile international markets – which are affected by factors such as events in Russia and the Middle East – means the cost of energy will continue to fluctuate,” Tim Jarvis, director general of markets at Ofgem, said in a statement.

Bills are expected to fall 1.4% from April onwards according to analysis from  energy consultant Cornwall Insight Ltd. However, they do say these levels represent the “new normal” when it comes to energy markets, with prices remaining well above historical averages.

(Updates with comment from energy minister in fourth paragraph.)