The energy price cap is expected to fall by 14% in April, saving households about £268 a year.
The latest prediction from research consultancy Cornwall Insight forecasts that Ofgem’s energy price cap will decrease to £1,660 a year from April, down from the January price cap level of £1,928. The cap is currently £1,834.
However, households may pay more or less than the average £1,660 dual fuel direct debit figure as the Ofgem energy price cap doesn’t set a maximum limit on bills. Instead, it limits how much suppliers can charge you on the unit rate and standing charge.
The downwards trend is expected to persist throughout the year, falling to £1,590 in July before a slight increase to £1,640 from October.
Wholesale energy prices have experienced a significant decline since mid-November, triggering the anticipated drop in the price cap.
Cornwall Insight said that contrary to initial concerns, the Israel-Hamas conflict and problems such as potential LNG production strikes in Australia have as yet failed to materially impact energy supplies.
Additionally, the absence of further pipeline disruptions, similar to the Finnish Baltic Connector rupture, have further bolstered confidence in energy security.
These factors, coupled with a relatively mild winter to date, have left European gas-in-store levels above expectations for the remainder of winter, driving down wholesale prices.
Cornwall Insight pointed out that while energy price forecasts have improved for now, global events such as the pandemic, the Russian invasion of Ukraine, and the conflict in Gaza have highlighted the susceptibility of UK energy prices to external factors. Prices may therefore rebound if future incidents, such as the disruption to shipping through the Red Sea, raise concerns over disruption to supplies.
Additionally, there are ongoing consultations on potential changes to the price cap, including the standing charge and bad debt collection, which could impact the overall price cap level.
Earlier this week, Ofgem proposed a £16 surcharge on household bills to cover bad debts.
Energy bills dips offer ‘a small light at the end of the tunnel’
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “As households brace themselves for energy bill rises in January, current forecasts of price cap dips later in the year may offer a small light at the end of the tunnel. The recent stabilisation of international energy markets has trickled down to April’s price cap predictions, raising hopes that this downward path will continue throughout the remainder of 2024.
“However, history has shown that the wholesale energy market is highly volatile, and unexpected global events can lead to spikes in energy prices, ultimately feeding through to household bills – as we saw this time last year. Whether concerns in the Red Sea become heightened, or another potential disruption to supply occurs, there are no guarantees the price cap will not rise again.
“The current scarcity of fixed deals lower than the cap further complicates the situation. With few affordable alternatives, households are left at the mercy of market fluctuations.
“Ongoing consultations, including over the treatment of standing charges and the costs associated with bad debt collection, contribute to the uncertainty, and we await to see how any changes will influence bills.”
