Energy prices forecast to rise to highest level for three years amid inflation hike

Household energy prices are set increase again to the highest level for three years heading into winter, according to new forecasts.

Bills are due to increase despite the Prime Minister’s plan to remove VAT from household electricity bills from October.

The energy price cap is currently expected to increase by 4% in October compared with the current rate, experts at Cornwall Insight said.

Analysts said the increase is driven by continued uncertainty linked to the Middle East conflict, which has pushed wholesale energy prices higher.

The ongoing heatwaves across Europe have added further pressure by increasing gas demand for power generation to meet air conditioning and cooling demand.

Cornwall said it expected a typical household to be facing an annual bill of £1,729, up from £1,663, based on an Ofgem’s updated definition of a typical consumer, which came into effect from July to reflect falling household energy use.

It said this would be the equivalent of £1,941 per year based on its previous calculations, up from £1,862 currently.

It would mark the highest average bill since July 2023.

The increased October cap, which will remain in place for three months, will come into force as households start to increase their energy usage further by using their heating more regularly, adding to bills.

Cornwall said the expected increase in October will be less than otherwise expected because of the proposed removal of VAT from household electricity bills.

This comes as inflation jumped to its highest rate since March, yesterday, after energy prices were pushed up by the Iran war.

The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation rose to 2.9 per cent in July, up from a 15-month low of 2.6 per cent in June.

It follows a 13 per cent hike in Ofgem’s energy price cap last month, which increased the average gas and electricity bill by £221 to £1,862 a year.

The ONS said the rise in the cap was driven by the biggest rise in gas prices for almost four years.

The Prime Minister vowed to do what he can to help people struggling with rising costs. Mr Burnham said: “We can’t control though what is going on in the Middle East, and the effect of the conflict there is now being felt in inflation here, and in other countries around the world.

“But people can be sure that what I can do to help people, I will do, I realise these times are really hard but already people can see a month into office I have done things that will make a difference.”

There are concerns that inflation is set to keep rising as the conflict sends energy costs even higher over the winter months, and as the hot weather damages crops and puts food costs under pressure.