Energy bills could fall by £450 a year, experts say – but they won’t go back to normal until the end of the DECADE
- Household energy costs are set to fall from July, Cornwall Insight analysts say
- However, they are still much higher than normal and may remain so for years
Households are set to save £447 a year on their energy bills, experts believe – with exact prices being finalised in less than a week.
However, energy bills are not expected to fall to normal levels for another seven years, these predictions say.
The Ofgem price cap, which sets energy bill prices for more than 80 per cent of British homes, is expected to fall from July from £3,280 to £2,053 a year for average use.
Although the price cap is currently £3,280, most are having their bills effectively capped at £2,500 under the Government’s Energy Price Guarantee.
The predictions have come from analysts at Cornwall Insight, which has built a reputation of accurately predicting changes in energy price levels.
Cornwall Insight has today published its final predictions for bills between July and September, with the exact figure to be finalised by Ofgem on May 25.
Going down: Energy bills may be about to fall, but they are likely to stay high for years yet
At the moment, most households are on variable rate energy deals limited by the Ofgem price cap.
This cap is currently £3,280 a year for most households, depending on their gas and electricity use. The cap applies to households paying by direct debit.
However, in practice household energy bills are capped at £2,500 a year for typical use.
That is due to the Government’s Energy Price Guarantee, which sees the state pick up some of the tab for consumer gas and electricity bills.
The Ofgem price cap sets yearly bill prices, but is updated four times a year.
Cornwall Insight thinks the price cap will then fall to £1,975.70 a year from October to December 2023, then rise to £2,044.96 from January to March 2024.
Why are energy bills so high?
Since coming out of the pandemic demand for gas has gone through the roof, but supply has struggled to catch up. It has sent prices soaring and pushed up the cost of gas and electricity for both households and businesses.
This has been compounded by Russia’s invasion of Ukraine which has led to a squeeze on gas supplies across Europe and seen analysts predict a cold winter could lead to blackouts and energy rationing.
All eyes on cheap fixed rates
Households could still make major savings if energy firms bring back cheaper fixed-rate deals.
Historically, the cheapest energy deals were fixed-rate tariffs, with variable-rate deals normally reserved for households that had reached the end of their cheap tariff and not switched.
But energy firms all pulled these low-cost fixed deals when energy prices started rising in October 2021, leaving consumers with no choice but variable rates.
A Cornwall Insight statement said: ‘We do not currently expect bills to return to pre-2020 levels before the end of the decade at the earliest.
‘However, we hope to see the reappearance of more competitive fixed-rate energy tariffs as prices begin to stabilise, providing consumers with additional options to manage their energy costs.’
But consumers will need to be careful they do not lock in to a fixed deal that later turns out to be uncompetitive.
100,000 face mortgage agony
More than 100,000 households could see their mortgages skyrocket over the next few weeks.
Many snapped up the chance to buy a home with a fixed-rate deal during the pandemic to cash in on a stamp duty holiday and low repayments.
But the Financial Conduct Authority estimates that as many as 116,000 households will come off those deals next month. A typical two-year fix in June 2021 was 2.59 per cent, which has now jumped to 5.26 per cent.
On a £250,000, 25-year mortgage monthly repayments would jump from £1,133 to £1,412. And those with a £500,000 loan could see a bump from £2,266 to £2,824.
If homeowners have to move on to their lender’s standard variable rate this could be 7.49 per cent or more.
The figures raise alarm bells for the more than 1.4million people who will see their fixed rates end this year.
The Resolution Foundation think-tank says homeowners collectively face a £12billion hit coming off fixed deals this year.