Energy prices expected to rise further in the New Year

Ahead of household energy bills rising by 4% from 1st October, Cornwall Insight have released new forecasts which suggest a bigger increase is on the way in the new year. The price cap is expected to rise by 16% compared to October, reaching £1,999 a year for a typical dual-fuel household¹ in January 2027, an increase of £276 and the largest rise since January 2023.

This substantial increase is largely driven by the escalating conflict in the Middle East, which continues to disrupt gas supplies to the UK and the rest of the world. The knock-on effects have seen EU gas storage stocks at their lowest September levels in 15 years. EU storage facilities were around 65% full at the beginning of September, well below their long-term average for this time of year. This will fuel concerns over supply resilience over the coming winter.

Ofgem sets the wholesale part of the cap using prices from a fixed period known as the observation window. With that window for the January cap now nearly halfway through, the price rises seen in September are already locked in, making a January increase all but certain.

The extent of January’s increase will depend on how the US-Iran conflict progresses. Indeed, in early September, wholesale prices rose to their highest level in four years before falling back. However, even if the conflict ended tomorrow, the supply disruption would likely take months to correct itself, while the increase in wholesale prices seen over the current observation window would still be baked into the cap for the first three months of next year.

The effects could also stretch well beyond this winter. If Europe exits winter 2026/27 with depleted gas storage inventories, more gas will need to be bought over the summer to rebuild stocks before the following winter, pushing prices up further in a vicious circle.

Dr Craig Lowrey, Principal Consultant at Cornwall Insight, said “These prices are going to hit households hard. January is already a difficult month for many, with cold weather and bank balances still recovering from Christmas, and now they face the biggest price cap rise we’ve seen in four years. At the moment, we can’t yet see an end to the volatility, and with gas stocks as low as they are, the effects of the conflict could be with us for many more months.

“With the Budget just around the corner, there is the possibility of further household support beyond the VAT move announced in July. However, the Government is going to have to think carefully about the type and level of support that they make available.

“The bigger question is what comes after, more renewables on the system will help protect Britain from shocks like this but building them takes time and money. The impact of spending on the electricity network, for example, continues to put pressure on bills, while there are fair arguments on both sides about whether the transition should slow down given the current affordability concerns.

“Easing off to save money now might look tempting, but it would leave us just as exposed the next time gas prices spike. This is the second energy crisis of the decade, and households have been through enough of these rollercoaster years. The real test for the Government is breaking that cycle with practical short- and long-term fixes, without asking the most vulnerable to foot the bill.”

Edward Ware, Head of Influencing at Money Advice Trust, the charity which runs National Debtline and Business Debtline, said “These will be extremely worrying times for households who have been forced to absorb multiple hits on their budgets in recent years. As bills rise and temperatures fall, many people will feel they have no choice but to ration the energy they use, from limiting how often they put the heating on to cutting back on hot meals and hot showers to try and keep bills affordable.
“We recognise there have been welcome measures to reduce bills, but for households already stretched to breaking point, another increase in energy costs without additional support in the upcoming Budget could be the difference between staying on top of essential bills and falling into debt.

“But as well as bills rising again, people are still dealing with enormous levels of debt built up in previous crises through no fault of their own. With some projections suggesting consumer energy debt is set to hit £7 billion by the end of the year, it’s clear this is an issue that must be tackled. Ofgem’s Debt Relief Scheme would allow energy suppliers to write off debts built up during previous shocks and give households some additional breathing room and lift the burden and worry of those debts. The consultation has already taken place, it now needs the urgency and commitment of government to bring it into reality.”

Cornwall Insight’s Default Tariff Cap forecast (dual fuel, direct debit customer)

Default Tariff Cap Forecast	January-March (Q1 2027) Forecast
Electricity	£959.44
Gas	£1,039.84
Total	£1,999.28

 Default Tariff Cap forecast, Per Unit Costs and Standing Charge (dual fuel, direct debit customer). These do not include the variances above.

Fuel	Standing charge (£/day)	Per Unit Cost (p/kWh)
Electricity	0.55	30.28
Gas	0.31	9.76