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How low can you go? The price cap to fall by £77/year

Just over two months after the default tariff cap was increased for summer 2019, our thoughts have turned to Ofgem’s 1 October winter 2019-20 adjustment to the cap. The start of May marked the start of the second half of the data window for wholesale costs in the cap formulas. Forecasts from our latest Tariff Cap Predictor show that there is likely to be a significant reduction to the default tariff cap in the winter 2019-20 period. Based on wholesale prices between February and April 2019, our models predict a possible fall in the default tariff cap by the equivalent of £77/year from its current level of £1,254 (for direct debit customers). This decrease would reverse two-thirds of the rise made by Ofgem in April. The drop is mostly a reflection of the substantial price reductions in the wholesale market since 1 February, with most of the changes driven by lower quarterly gas prices. For example, Q319 was trading at 49.0p/th on 31 January, while the same contract at the end of April was trading 25% lower at 36.8p/th. While wholesale costs constitute a large proportion of the falling forecast, there are other influences that have added to the deflationary effect – reduced VAT, lower rates of inflation and smart meter costs. Ofgem will confirm the new default tariff cap levels in August, and the final figures will depend heavily on the wholesale prices between now and the end of July. With the cap seemingly on a downward path for the ...

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