The energy price cap will increase by 1.2 per cent from January, marking the second consecutive rise and adding £21 to the average household bill. This brings the average annual energy cost to £1,738 for the period January to March 2025, according to Ofgem, the energy regulator. While this represents a £190 decrease compared to the same period in 2024, the latest increase will undoubtedly place further strain on already stretched household budgets.
The price cap, which sets a limit on the maximum amount energy suppliers can charge per unit for those on standard variable tariffs (the most common type), is based on various factors, including volatile wholesale energy prices. These prices, reflecting the cost of gas and electricity before reaching consumers, have been significantly influenced by global events, particularly the ongoing situation in Russia and the Middle East, according to Ofgem's director general of markets, Tim Jarvis.
Jarvis acknowledged the persistent challenge of energy costs for many households, stating that while the cap has remained relatively stable, customers should âshop aroundâ to find the best available tariffs to mitigate the impact of the price rise. He highlighted the increased availability of tariffs as an avenue for consumers to reduce their bills.
The impact of the price increase is significant. Rising energy bills contributed to inflation exceeding the Bank of England's 2 per cent target in October, reaching 2.3 per cent. Craig Lowrey, principal consultant at Cornwall Insight, commented that while the price stabilisation was anticipated, the lack of a decrease from autumn levels would be disappointing as colder weather sets in. He noted that persistent supply concerns have maintained market volatility.
The announcement has prompted renewed concerns from charities about the escalating cost of living. National Energy Action has emphasised the need for targeted government support to assist vulnerable households. David Southgate, policy manager at disability equality charity Scope, highlighted the disproportionate impact on disabled people, who often require more energy due to medical needs and assistive technologies. He described individuals facing âsky-high billsâ and accumulating substantial debt due to increased energy consumption, advocating for discounted energy bills specifically for disabled individuals.
Ofgem is currently reviewing the long-term effectiveness of the price cap mechanism and considering the potential for a permanent ban on acquisition tariffsâlower introductory rates used to attract new customers from existing suppliers. The ongoing debate over these measures highlights the complexities and challenges of ensuring affordable and sustainable energy for all UK households. The latest price increase underscores the ongoing need for policy interventions and support to protect vulnerable consumers from the fluctuating costs of energy.