Price cap to remain significantly above £3,000 a year until at least 2024

Our latest forecasts for the Default Tariff Cap have shown a typical household’s energy bill will be well over £3,000 a year for the next 15 months, with the average bill over Summer 2023 (Apr-Sep) sitting at £3,649 – just over £300 per month.

We have also updated the predictions for the Q4 2022 (Oct – Dec 2022) and Q1 2023 (Jan – Mar 2023) caps. They are now forecast to be £3,359 and £3,616 respectively. While our predictions for the price cap have continued to rise amid wholesale market volatility, due to uncertainty over Russian gas supplies ahead of winter, these latest forecasts indicate the potential longevity of high household energy costs.

There are several ongoing industry consultations being undertaken by energy regulator Ofgem that will affect the level of the cap, and as part of our forecasts we have taken a view on how these will play out. The main one of these is the proposed move from the current use of seasonal cap periods to quarterly caps with effect from this October.

Figure 1: Cornwall Insight’s default tariff cap forecasts, £ per year including VAT (dual fuel, direct debit customer, national average figures)

QUARTERLYQ4 2022 CI ForecastQ1 2023 CI ForecastQ2 2023 CI ForecastQ3 2023 CI ForecastQ4 2023 CI Forecast
Electricity£1,518.12£1,626.80£1,674.39£1,616.98£1,549.01
Gas£1,840.72£1,988.95£2,054.92£1,951.89£1,920.98
TOTAL£3,358.84£3,615.75£3,729.31£3,568.87£3,469.99
SEASONAL AVERAGE£3,487.29£3,649.09

Source: Cornwall Insight

Figure 2: Default Tariff Price cap levels chart since 2018 and Cornwall Insight’s predictions for the next four quarterly cap periods

Source: Cornwall Insight

Customers will be sadly used to these ever-increasing price cap forecasts. We have less than a month until the new price cap is announced and given the trends in the wholesale market and the concerns over Russian supply, unfortunately the only change to the prediction is likely to be up.   However, while the rise in forecasts for October and January is a pressing concern, it is not only the level – but the duration – of the rises that makes these new forecasts so devastating. Furthermore, given the current level of the wholesale price, this level of household energy bills currently shows little sign of abating into 2024.

While the government has pledged some support for October’s energy rise, our cap forecast has increased by over £500 since the funding was proposed, and the truth is the £400 pledged will only scratch the surface of this problem.

Our new figures show that even increasing support for October will not make much of a dent in what is likely to be a sustained period of high energy bills. A review of delivering support for the next cap periods should be on the top of the to-do-list for any incoming Prime Minister. As our price cap breakdowns show, tinkering with VAT and policy costs will only make a dent in bills, when it is the high wholesale prices behind the increases.

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