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British household energy bills are set to climb in April by more than expected after regulator Ofgem said it would raise the price cap by 6.4 per cent following an increase in wholesale costs.
Ofgem on Tuesday set the price cap at a level for the period between April and June that would see a typical household pay £1,849 a year, up from £1,738 now.
The rise marks the third straight quarterly increase in the cap, adding to the pressure on households grappling with the cost of living. A spell of cold weather helped drive up wholesale prices.
The increase of 6.4 per cent is higher than the 5 per cent that analysts at Cornwall Insight, an energy consultancy, had predicted.
The price cap, introduced in 2019, sets a limit on how much energy companies can charge homes on default tariffs per unit of gas and electricity consumed. It is reset every three months to reflect changes in wholesale prices.
The regulator’s move is a blow to the government, which is contending with a rebound in inflation and anaemic economic growth.
Households bills have fallen steeply from the peak of £4,059 hit in early 2023, but remain hundreds of pounds higher than before the energy crisis that started in late 2021. Gas shortages later worsened following Russia’s full-scale invasion of Ukraine in 2022, sending energy prices soaring.
The latest increase will also deepen fears over the affordability of energy as Ofgem figures showed households had built up a record £1.6bn in arrears to their suppliers by the end of September last year.
It comes as Ofgem has proposed reforms that would require energy suppliers to offer tariffs without a standing charge.
Cornwall Insight expects gas prices to fall slightly in the third quarter of this year, before climbing again in October as the onset of colder weather boosts demand.
In response to Ofgem’s announcement, the government said it would expand eligibility for the warm home discount giving households £150 off energy bills. It said the move would mean an extra 2.7mn households would be eligible, meaning more than 6mn should receive the help next winter.
After taking office last year, the Labour government controversially withdrew a different winter fuel subsidy from most pensioners.
Ed Miliband, energy secretary, said: “This government is determined to do everything we can to protect people from the grip of fossil fuel markets.”