Ros Atkins on why energy bills are rising
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As of Friday, April 1, 2022, the latest change to the energy price cap has taken effect, adding an estimated £700 extra per year in bills for the average household. The unprecedented rise has piled greater pressure on Britons already struggling to meet the demands of the cost of living crisis.
Millions of people are now feeling the impacts of the new 54 percent rise in the energy price cap, which means a household using a typical amount of gas and electricity will now pay £1,971 per year.
The £693 a year rise for an average energy bill will affect 18 million households, with 4.5 million customers on prepayment meters facing an even greater increase of £708 a year.
A 30-year-high in inflation is further compounding the misery for Britons, many of whom could now struggle to buy basic goods and services.
However, the situation could become even worse in six months’ time when a new energy price cap is announced.
Money saving expert Martin Lewis has predicted that another 25 percent price rise could be on the way when Ofgem conducts its next review.
At present, wholesale prices are being affected by the war in Ukraine and ongoing pressure on suppliers.
Energy consultancy firm, Cornwall Insight, has also warned that prices could rise by another £629 before we reach the end of 2022.
The most up-to-date prediction from the company would, if accurate, push annual energy bills for a household using a typical amount of gas and electricity to up to £2,600 from October.
When is the next energy price cap review?
Ofgem, the regulator for the energy industry, reviews the energy price cap twice a year in February and August.
Once officials have decided what the next cap will be it will take effect later this year from October 1.
Analysts have predicted that a typical bill is expected to fall back to the current level in summer 2023, although longer-term forecasts are tricky.
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What is the energy price cap?
The energy price cap is a limit on the unit rate and standing charge that energy suppliers can charge for their standard variable – or ‘default’ – tariffs.
Originally, the price cap was confirmed by Ofgem in September 2018 at an initial cap of £1,136.
However, it didn’t actually come into force until January 1, 2019, by which time the rate had been increased by a pound to £1,137.
The latest review represents the third consecutive increase in the cap level and the second consecutive time it has risen to its highest ever point (£693 more than its previous high of £1,277).
According to data from the Office for National Statistics (ONS) four in 10 bill-payers have been finding it very, or somewhat, difficult to afford their energy costs.
Meanwhile, the governor of the Bank of England, Andrew Bailey, said the country is facing the biggest single shock from energy prices since the 1970s.
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