Energy price cap forecasted to fall 7%

Cornwall Insight has announced its final forecast for the July-September Quarter 3 2024 Default Tariff Cap (price cap) indicating that for the typical dual fuel household it predicts that the July price cap will be £1,574.37 per annum. This is a fall of approximately 7% from the current price cap which was set at £1,690 per year for a typical consumer. If predictions are correct this would represent a 25% drop over the past year, with prices around £500 a year lower than July 2023. Looking further ahead Cornwall Insight’s forecasts the cap will rise slightly in October before falling again in January 2025.

Predictions have seen a slight rise in recent weeks as gas and electricity prices rebounded from their 30-month lows in February before broadly stabilising from mid-April. This reflects a combination of short-term market influences such as weather and supply availability, alongside longer-term drivers such as geopolitical concerns and raised oil prices.

While a reduction in the price cap is good news, bills still remain hundreds of pounds above pre-crisis levels and concerns continue to be raised about the effectiveness of the price cap in bringing consumer costs down to more affordable levels for households.

Earlier this year, Ofgem announced that it would undertake a comprehensive review of the cap and its structure. As such, significant changes to the cap could be on the horizon within the next one to two years, especially with the upcoming election likely to influence the landscape. This includes the continued focus on energy standing charges, with the government and Ofgem having faced calls from a number of energy suppliers and other stakeholders to scrap the daily charges.

Dr Craig Lowrey, Principal Consultant at Cornwall Insight said “When faced with headlines announcing minor changes to the cap it can be easy to overlook the broader trend of declines. Our projections suggest that from July, the average annual bill will fall by around £500 compared to last summer, offering further relief given the quarter-on-quarter drop seen in April.

“Of course we must recognise lower prices don’t erase all the problems. The very fact we are still seeing bill levels which are hundreds of pounds above pre-crisis levels underscores the ongoing challenges faced by households.

“While the cap is certainly not the ticket back to long-term energy bill affordability, Ofgem’s review could pave the way for fairer, more efficient energy bills. However, given the breadth of reforms being considered by the regulator, it is worth remembering that such changes will inevitably lead to trade-offs. For example, reducing standing charges, while seemingly beneficial for low-energy users, could lead to higher unit prices. This could disproportionately impact those in less energy-efficient homes or with greater energy needs, some of whom could be vulnerable. Finding the right balance is crucial.

“The path forward for energy pricing remains uncertain, and with stakeholders advocating for reforms – coupled with a general election on the horizon – energy bills are likely to be an area of continued debate and transformation in the months ahead.”

Alastair Douglas from TotallyMoney said “While the latest forecast predicts a drop in the energy price cap, making the cost of energy around £500 a year lower than 12 months ago, bills are still hundreds of pounds more than they were a few years ago. During the same time, the overall cost of living has shot up, making things even harder for millions of people across the country.

“Not long ago, there were almost 50 energy firms fighting for customers, offering price-cap-busting deals for those willing to switch. But now, six suppliers dominate 70% of the market, meaning competition has bottomed out, and the price cap has essentially become a price fix. One option mooted by the regulator, is that it might remove acquisition tariffs — and if it does, it needs to protect existing customers from being punished for their loyalty.

“There are some offers which under-cut the price cap coming onto the market, so it’s worth checking to see if you can save money on your bills. However, always read the smallprint, as some might come with hefty early-exit fees of up to £300, meaning you might be tied down for a while.”

Richard Neudegg, Director of Regulation at Uswitch.com, said “A predicted 7% drop in energy prices in July is clearly good news, with the price cap looking likely to hit its lowest level in over two years.

“The future still remains uncertain, and with the price cap changing every three months – currently expected to rise in October before falling slightly in January –  it’s crucial not to be complacent.

“Households who want to lock in rates for price certainty should run a comparison to see what energy tariffs are available to them. There are many 12-month fixed tariffs available at rates cheaper than the current price cap, and even some that are 2% below these new predicted July rates.”