Britain's Energy Price Cap to Reach Three-Year High in October, Analysts Say
Rising Energy Costs and Government Response
By Susanna Twidale
Forecasted Increase in Price Cap
LONDON, Aug 19 (Reuters) - Britain's domestic energy price cap is forecast to rise about 4% in October to a three-year high, analysts at Cornwall Insight said on Wednesday, with higher wholesale costs due to the Iran war expected to wipe out the government's tax cut on electricity bills.
- The forecast comes after data on Wednesday showed a previous increase in energy bills pushed British inflation to a four-month high in July.
Government Measures and Limitations
- New British Prime Minister Andy Burnham said a 5% tax on electricity bills would be removed from October 1 as part of efforts to ease cost-of-living pressures, but this does not apply to gas costs which are also included in the price cap.
Impact of Global Events on Wholesale Prices
- "This increase is being driven by ongoing uncertainty over the U.S.-Iran conflict, with wholesale prices for the coming winter having risen to their highest level in almost four years," Cornwall Insight said.
- Disruptions to shipping in the Middle East and liquefied natural gas exports from Qatar, one of the world's largest gas exporters, combined with increased demand for power across Europe due to heatwaves, have led to a surge in international gas prices.
Price Cap Projections and Support Schemes
- Cornwall Insight forecasts energy regulator Ofgem's price cap will rise in October to £1,729 ($2,344) a year for typical use, up £66 from £1,663 in July.
- A government spokesperson said tackling the cost of living remains a priority for the government which, in addition to the tax cut from October, shifted some levies to cut around £150 from an average bill in April and last year extended the scope of a scheme to support the most vulnerable households called the warm homes discount.
How the Price Cap is Set
- Wholesale energy prices are the largest single factor contributing to British energy regulator Ofgem's domestic price cap, which is set on a quarterly basis using a formula that also reflects suppliers' network costs and environmental and social levies.
- Ofgem is expected to publish the next price cap level by August 26.
($1 = 0.7376 pounds)
(Reporting by Susanna Twidale. Editing by Mark Potter)
