Household energy bills are expected to fall by an average £500 from July in a sign that Vladimir Putin’s attempt to “weaponise” Russia’s gas supplies have failed.
A typical household’s energy bill will drop to the annual equivalent of £2,053 between July and September, according to a closely-watched forecast by Cornwall Insight. The forecast is based on a predicted change to the energy price cap.
It will mark the first time energy bills have fallen in almost three years, as European gas prices continue to tumble from the highs reached last year following Putin’s attack on Ukraine.
Regulator Ofgem set the price cap at £3,280 for March to June, down from a high of £4,279 in the previous three months.
However, household bills have been capped at about £2,500 per year under the Government’s energy price guarantee, which has been in place since October.
The Government has been paying energy companies the difference between the regulated price cap and its energy price guarantee.
July will be both the first time that the price cap has dipped below the guarantee’s level and the first time consumer bills have fallen in two years and nine months.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “As many people continue to suffer from the cost-of-living crisis, this will hopefully bring some cautious optimism that the era of exceptionally high energy bills is behind us.”
However, bills remain far higher than pre-crisis levels. In October 2020, the price cap stood at just £1,042 a year.
The boost to households comes despite Russia’s concerted campaign to pressure Europe into abandoning support for Ukraine by choking off gas supplies and forcing up prices.
At its peak, the benchmark European gas price shot up to €339 per megawatt hour last August when the closure of the Nord Stream 1 pipeline triggered concerns about continental supplies.
However, the European benchmark stood at €30 per megawatt hour on Friday.
Market prices have fallen following efforts across the EU to reduce energy usage, boost gas storage levels and import more liquified natural gas (LNG) from abroad. A relatively mild winter has also helped lower prices, given weaker demand.
Dr Lowrey said bills would “stay relatively stable” over the next nine months.
However, household energy costs are not expected to return to their pre-2020 levels – of about £1,000 less – until the end of the decade at the earliest.
Dr Lowrey added: “Those hoping to see a return to the kinds of bills seen at the start of the decade will be disappointed.
“Regrettably, it looks as if these prices may become the new normal.”
Cornwall Insight predicted the price cap would drop further to £1,976 in the final three months of 2023 before rising to £2,045 in the first quarter of 2024.
Investec has made similar predictions, forecasting that July’s price cap will land at around £2,044 per year.
Ofgem will confirm the next price cap figure on 25 May, before it comes into force from July 1.
The cap is reviewed quarterly and takes effect from April, July, October and January. The energy price guarantee was put in place to protect households amid fears bills could hit £4,000 by January.
The prices reflect the average bill for British households. The cap is actually calculated on the maximum price per kilowatt hour for customers on a standard or default tariff.