Energy bills are forecast to fall below £2,500 as gas prices continue to drop because of warmer weather this winter than expected.
Investec analysis said that the energy price cap is now forecast to fall to £2,478 in July, over £150 below its most recent estimate on January 4. It added that it expects energy bills to fall to £3,317 in April then drop to £2,478 in July and £2,546 in October.
Investec analyst Martin Young said: “Our tariff cap estimates fall again as wholesale prices have nudged down since our previous mark-to-market, and now stand in the region of c.£2,500 for the second half of 2023.”
The prediction is significantly lower than the consultancy Cornwall Insight’s forecast last week of bills settling at about £2,800 from July.
UK household energy prices are capped under the government’s energy price guarantee (EPG) at £2,500 for a typical household – although there is no limit on the amount a household can be charged, depending on usage.
However, bills are still set to be far higher than historic norms. In October 2021, the price cap was £1,277.
Analysts at Deutsche Bank said this could mean a significant boost to the public finances.
“Falling gas prices matter – not just for the economy, but also for public finances,” Deutsche Bank’s chief UK Economist, Sanjay Raja, and Shreyas Gopal, strategist at Deutsche Bank Research, said.
“Indeed, based on the forward gas and electricity curves, the Ofgem Price Cap will fall below the new threshold (£3,000) for the Energy Price Guarantee (effective from April 2023) from July onwards. Put differently, given the new outlook on wholesale gas and electricity prices, Chancellor Hunt will likely end up subsidising energy bills for only one quarter (Apr-23 to Jun-23) in 2023/24 before dual fuel bills drop below £3,000.
“With PM Sunak’s first budget only a couple months away, Chancellor Hunt will find himself with a little more fiscal headroom owing to lower energy prices. Energy subsidies via the ‘Energy Price Guarantee’, ‘Energy Bill Relief Scheme’ and the newly announced ‘Energy Bill Discount Scheme‘ will altogether cost the Chancellor £10bn less over the current and next fiscal years. Could these savings be used elsewhere to cushion the UK economy’s slowdown? Watch this space.”
Investec said that the scheme would now cost the government £2.3bn in 2023-24, a significant reduction in the £12.8bn.
European gas prices dropped back to their levels before Russia invaded Ukraine last February.
Sam Richards, CEO of pro-growth campaign group Britain Remade, said: “The latest forecasts from market analysist that energy bills will fall by the middle of this year will obviously be welcomed by millions of households up and down the country. However, there will be no real respite for hard pressed families and businesses until government fixes the core problem:
“Unfortunately, the government has not yet set out how they intend to clear away the hurdles that so often stand in the way of new cleaner and more affordable energy projects
. Not only will these projects deliver energy independence, so we are never again reliant on importing expensive gas from dubious regimes, they will create tens of thousands of good-quality well paid jobs, delivering growth right across the UK.”