What will happen to UK energy prices going forward?

Average energy bills for British households increased in October and they are likely to rise even further in the new year as the Iran war pushes up prices.

Ofgem’s energy price cap – the default rates for those on standard out-of-contract tariffs – rose by 4% on 1 October. This put the cost of gas and electricity for a typical dual-fuel home in England, Scotland and Wales paying by direct debit up to £1,723 a year.

With the Iran war causing diesel prices to hit record highs, the chancellor is being urged to deliver cost-of-living support in his Autumn Budget next week. This could “take the edge off” the likely increase in the energy price cap in January, said The i Paper.

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How are energy bills set?

Energy companies charge households for how much gas or electricity they use, based on a measurement called kilowatt hours.

You could be on a fixed-rate tariff that “sets the cost of energy for a certain amount of time”, such as one year, said CompareTheMarket. Many households are on variable tariffs that can “go up or down according to the market”.

The cost of a variable tariff is linked to industry regulator Ofgem’s price cap.

What is the energy price cap?

The price cap sets a limit on how much suppliers can charge for each unit of energy, and your daily standing charge if you are on a standard variable tariff.

The price cap is calculated every quarter by Ofgem based on a “range of factors”, said uSwitch, including wholesale and network costs. It has been set at £1,723 for the period between October and December after previously dropping to £1,663 per year between April and September.

But this is only the average, and “your bills might look very different depending on your circumstances”, said Which?.

Will energy bills rise in 2027?

Prices have remained high recently as the tensions in the Middle East are still “disrupting supply”, said This is Money.

Energy consultancy Cornwall Insight warned the price cap could be in line for a “substantial increase” of 16% in January to £1,999. With EU gas storage stocks at their lowest September levels in 15 years, much will “depend on how the US-Iran conflict progresses”.

Energy suppliers including British Gas, EDF and E.On predict that the price cap could rise by 25% on average, which could have a “significant impact” on households, said uSwitch.

Is there support available for rising energy bills?

The government has already removed the 5% VAT charge on domestic electricity bills until the end of March 2027.

You may already qualify for the warm home discount scheme, worth £150, if you are on pension credit or other benefits, or the winter fuel payment, worth up to £300.

Chancellor John Healey is also under “growing pressure to offer fresh energy support for households”, said The Guardian. There are calls to remove green levies from energy bills but the “most likely solution” is understood to be increasing the warm home discount, said the paper.

Energy suppliers do offer payment holidays or hardship grants, such as Octopus Energy’s Octo Assist and the British Gas Energy Trust.

Help should also be available from charities such as Citizens Advice “if you’re struggling to pay for energy or think you may get into difficulty”, said Ofgem.