The energy price cap will rise by 4% from October, Ofgem said, pushing up bills for millions of households as the conflict in the Middle East keeps wholesale gas prices elevated.
The regulator said the cap for a typical household paying by direct debit will increase by £60 a year, or £5 a month, to £1,723 for the three months from 1 October.
The cap limits what suppliers can charge the roughly 22 million households on default tariffs; the roughly 11 million on fixed deals will not be affected.
Ofgem attributed the increase largely to higher wholesale gas prices, with volatile global gas markets, driven by the Middle East conflict, remaining the dominant factor behind changes in bills. Even so, it noted that prices remain 52% below their peak during the 2022 energy crisis, when the government stepped in to cap bills at £2,500.
The rise was tempered by the government’s decision to remove VAT from all domestic electricity bills.
“It could have been worse,” said Sarah Coles, head of personal finance at AJ Bell.
“The new cap reflects the fact VAT is being removed from electricity bills in October – saving about £45 a year. When added to the fact that less gas is being used to produce electricity, it means that although gas prices have risen 8%, electricity prices are broadly stable. However, higher costs will still make a nasty dent in household budgets.”
Ofgem said that without the VAT change, the cap would have risen by around £45 more.