The energy price cap will rise by 13% from July
The rise means that a typical household will pay £1,862 per year – an increase of £221
The regulator OFGEM says increase is a result of higher wholesale gas prices, caused by the ongoing conflict in the Middle East. However, prices remain well below the height of the energy crisis in 2022 when the government stepped in to cap bills at £2,500.
From July, electricity prices are set to increase by less than gas prices – unlike what we saw during the energy crisis.
Customers will see a smaller price increase of around 5% on their electricity bills compared to gas bills which are rising by 24%. This reflects the increase in the amount of renewable generation on the system and therefore reduced reliance on gas to generate our electricity.
Energy Secretary Ed Miliband said in response
“The rise in the price cap because of a war we did not choose is deeply unwelcome news for households across the country.We know people were under pressure before this crisis, and that’s why easing that burden is our number one priority.”
The current price cap for a typical household paying by direct debit for gas and electricity is £1,641. Based on the energy use of a typical domestic household, from July the price cap will rise by £18 a month for the average household using both electricity and gas if this level was sustained for a year.
Tim Jarvis, Ofgem CEO, said:
“Today’s price change reflects continued volatility in global energy markets. This means higher wholesale gas prices, driven by ongoing conflict in the Middle East, is impacting the price we pay for energy.
“We understand many will be concerned about rising prices. While energy use typically falls over the summer months, there are still practical steps households can take to manage costs, including exploring fixed tariffs or changing their payment method. Smart meter customers can also take advantage of half price or cheap electricity at the weekends.
“While our energy supplies remain secure, the best way to limit this exposure is by investing in our energy network. That’s why we’re unlocking the funding needed for the biggest transformation of our lifetime to deliver a system that is secure, resilient, and works for consumers across Great Britain.”
Matthew Allen, Lecturer in Economics at the University of Salford, said:
“The rise in household energy bills linked to instability in the Middle East is starting to feel uncomfortably familiar for many households. There is a real sense of “here we go again”, with echoes of the Covid-era cost of living crisis beginning to reappear.
Although inflation dipped slightly last month, rising wholesale energy prices and higher fuel costs risk reversing that progress very quickly. Inflation has struggled to remain sustainably at the Bank of England’s 2% target for much of the past five years, with households and businesses facing wave after wave of external shocks, from Covid-19, supply chain disruption and the war in Ukraine, through to the latest tensions involving Iran and global energy markets. While inflation briefly returned to the 2% target during 2024, it has remained persistently above target for the overwhelming majority of the post-pandemic period.
Energy price shocks rarely stay confined to gas and electricity bills alone. They feed through into transport costs, food prices, manufacturing, logistics and eventually almost every aspect of household spending. Consumers may not immediately see the impact everywhere, but businesses certainly will, and those additional costs are often passed on over time.
The UK remains heavily exposed to global energy markets, even when domestic supply is relatively stable. If oil and gas prices continue rising because of geopolitical tensions involving Iran and disruption fears around major shipping routes, UK households will almost certainly feel the consequences through higher bills, more expensive fuel and weaker consumer confidence.
Politically, this creates another major headache for Rachel Reeves and the government. In recent weeks Reeves has already attempted to ease pressure on households through measures such as VAT reductions on attractions and children’s food, alongside scrapping the planned 5p fuel duty increase in September. However, the challenge now is that governments can only cushion so much before difficult questions start emerging about affordability and fiscal credibility.
There is also the growing question of whether further intervention is coming. Reeves has already faced criticism after attempting to encourage supermarkets to cap the price of basic essential food items, with concerns raised about government interference in market pricing mechanisms. If inflation begins climbing again because of energy shocks, pressure will increase on the government to “do something” once more. But every intervention carries a cost, and ultimately the question becomes: where does that money come from?
The wider concern is psychological as much as economic. During the Covid-era crisis, households became extremely sensitive to uncertainty around bills, fuel and essential spending. Even the expectation of rising costs can reduce consumer confidence and slow spending. That creates another balancing act for policymakers, because weaker consumer spending can itself slow economic growth at a time when the UK economy is already under pressure.
For many people, this no longer feels like an isolated geopolitical event happening thousands of miles away. It increasingly feels like another external shock feeding directly into everyday life in the UK.”
