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Energy bills set to fall by £80 a year in October

The Telegraph logo The Telegraph 02/07/2019 Sam Meadows
a close up of a stove: The energy price cap will be changed again in October, with an announcement set to be made in August © Lauren Hurley/PA The energy price cap will be changed again in October, with an announcement set to be made in August

Household energy bills could fall by more than £80 a year according to research from industry analysts.

In its latest quarterly report, Cornwall Insight predicted that the new energy price cap will fall by £83 when it is altered again in August. The cap, which limits what suppliers can charge the average user, is pegged to the “wholesale cost” of energy, or what providers have to pay for power.

This would bring it down from its current level of £1,254 to £1,171 – although that is still higher than the £1,137 when it was originally introduced in January.

CARDIFF, UNITED KINGDOM - MAY 02: XX on May 2, 2019 in Cardiff, United Kingdom. (Photo by Matthew Horwood/Getty Images) © 2019 Matthew Horwood CARDIFF, UNITED KINGDOM - MAY 02: XX on May 2, 2019 in Cardiff, United Kingdom. (Photo by Matthew Horwood/Getty Images)

Wholesale cost has been falling while bills were increasing, leading to claims that the cap has failed. Last month, automatic switching site Look After My Bills revealed the majority of energy firms had increased prices to within £30 of the cap.

Charlotte Farmer, an analyst at Cornwall Insight, said: “With the cap seemingly on a downward path for the winter season, it is bound to feel somewhat counter-intuitive for suppliers and customers alike, with tariffs affected by the cap set to fall as the colder months roll in. 

“More generally, the reduction in the cap, should it occur as we forecast, is likely to be a significant challenge for suppliers, many of whom have already voiced concerns over the impact of the default tariff cap on their margins and working capital positions.”

a screenshot of a cell phone: Suppliers' gap to the cap? © Provided by Telegraph Media Group Limited Suppliers' gap to the cap?

The cap operates around six months behind the wholesale cost because of the way the biggest suppliers are required to plan ahead.

A spokesman for Ofgem said it expected the level of the cap to fall. She added: “We implement a consistent model for each update to the level of the cap, to ensure that consumers get the best deal possible.

“We are confident that the cap has significantly reduced the costs that these consumers would otherwise be paying, and on average consumers will now be paying around £75 to £100 per year less than they would have otherwise.”

Despite the cap decreasing, households could still get a better deal by shopping around. 

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