Household energy bills in Great Britain are poised to increase by an estimated £160 per year this summer, driven by escalating tensions in the Middle East and a subsequent surge in wholesale gas prices. Analysis by Cornwall Insight, an energy consultancy, forecasts a typical dual fuel bill could reach £1,800 annually when Ofgem, the energy regulator, resets the price cap in July.
The projected 10% rise follows a period of relative stability, with Ofgem’s current price cap set at £1,641 a year for the period from April to July – a £117 reduction from the previous quarter. This earlier reduction, however, fell short of the £150 annual decrease promised by Chancellor Rachel Reeves in last year’s budget.
The recent spike in gas prices stems from disruptions to energy infrastructure following retaliatory attacks launched by Iran after US and Israeli strikes. QatarEnergy has been forced to temporarily halt Liquefied Natural Gas (LNG) production at several sites, and Iran has warned ships against using the Strait of Hormuz, a critical shipping lane for approximately 20% of global oil and gas supplies. These developments have added significant pressure to global energy markets.
While the April-July price cap provides some respite, Ofgem will reassess costs for the subsequent quarter, factoring in the recent market volatility. Jonathan Brearley, Ofgem’s chief executive, cautioned MPs on Wednesday that the ultimate extent of any price increase remains uncertain, dependent on the duration of elevated wholesale prices. He indicated that prolonged closure of the Strait of Hormuz would exert “significant upward pressure” on bills.
The UK’s vulnerability to these price swings is amplified by its heavy reliance on gas for electricity generation and limited gas storage capacity, making it more exposed than many European counterparts. Andreas Schroeder, head of gas analytics at ICIS, highlighted the contrast with continental Europe, where abundant gas storage provides a buffer against external shocks. Britain, he noted, relies primarily on Norwegian pipeline gas and LNG imports.
The closure of Britain’s remaining coal-fired power plants further restricts the country’s options, preventing a shift to coal generation as a potential alternative, a strategy available to some European nations, according to Tom Marzec-Manser, a director at Wood Mackenzie.
The situation has prompted discussions between Chancellor Reeves and North Sea oil and gas industry leaders. A government source stated Reeves reiterated her commitment to ending the energy profits levy, a windfall tax on energy companies, but acknowledged the Middle East crisis necessitates a response. Prior to the recent escalation, industry expectations were for an announcement regarding the levy in Reeves’ spring forecast.
Energy Secretary Ed Miliband emphasized the necessitate to transition away from fossil fuels, stating that the conflict underscores the importance of investing in domestically produced renewable energy sources. Kemi Badenoch, however, argued that new North Sea oil and gas licenses could lower bills, a claim disputed by her shadow counterpart, who pointed out that oil and gas are sold on international markets and new licenses would not necessarily translate into lower domestic prices.
Craig Lowrey, principal consultant at Cornwall Insight, emphasized that events in the Middle East reinforce the argument for increased investment in renewable energy generation, arguing that reducing reliance on volatile global gas markets is the most effective long-term strategy for protecting households from future price shocks.
