Annual energy bills for average households in the UK are now forecast to hit £4,266 as gas and electricity prices continue to spiral.

The grim prediction has been made by consultancy Cornwall Insight, which expects regulator Ofgem to lift its price cap higher than initially expected.

In the first three months from January the price cap is expected to hit £4,266, meaning average households will pay £650 more compared to estimates of just last week.

From October this year, the price cap – based on the wholesale cost of energy – is now expected to be £3,582 – compared to £1,971 today.

Ofgem has said prices can be adjusted every three months to give energy firms a chance to adjust to volatile an rapidly changing costs.

Principal consultant at Cornwall, Dr Craig Lowrey, said that despite prices steadily rising, the latest jump in forecasts was a ‘fresh shock’.

He added: ‘The cost-of-living crisis was already top of the news agenda as more and more people face fuel poverty, this will only compound the concerns.’

Dr Lowrey warned that without more frequent changes in the price cap, more energy suppliers could be at risk of collapse.

‘Many may consider the changes made by Ofgem to the hedging formula, which have contributed to the predicted increase in bills, to be unwise at a time when so many people are already struggling,’ he said.

‘However, with many energy suppliers under financial pressure, and some currently making a loss, maintaining the current timeframe for suppliers to recover their hedging costs could risk a repeat of the sizable exodus seen in 2021.

‘Given that the costs of supplier failure are ultimately met by consumers through their energy bills, a change which means that this is less likely is welcome, even if the timing of it may well not be.’

Dr Lowery suggested it could be time to consider the cap’s usefulness, rather than criticising its methodology.

He added: ‘After all, if it is not controlling consumer prices, and is damaging suppliers’ business models, we must wonder if it is fit for purpose – especially in these times of unprecedented energy market conditions.’

The price cap forecasts from Cornwall Insight showed bills reaching £4,427 in April, before finally dropping slightly to £3,810 from July and £3,781 from October next year.

Dr Lowrey said that the Government must take action to step in and protect households from the runaway costs.

The Government has already promised £400 to every household, and extra help for the more vulnerable.

‘If the £400 was not enough to make a dent in the impact of our previous forecast, it most certainly is not enough now,’ Mr Lowrey said.

He said that the current price cap is not controlling consumer prices and damaging suppliers’ business models, and asked if it was fit for purpose.

‘The Government must make introducing more support over the first two quarters of 2023 a number one priority.

‘In the longer-term, a social tariff or other support mechanism to target support at the most vulnerable in society are options that we at Cornwall Insight have proposed previously.

‘Right now, the current price cap is not working for consumers, suppliers, or the economy.’

Get in touch with our news team by emailing us at [email protected].

For more stories like this, check our news page.

Source: Read Full Article