Households face another sharp rise in energy costs in the new year, experts have warned, forecasting an increase of more than £200 above the current level.
Ofgem’s energy price cap will rise in October to £1,723, the regulator confirmed on Wednesday, an increase of four per cent from the current £1,663.
The £60 rise comes as millions of Brits continue to struggle with the cost of living, which Andy Burnham has made a priority of his government.
One of the new prime minister’s first moves was to announce a temporary cut to VAT on energy bills, saving £45 a year for the average household.
Sir Keir Starmer’s government also announced a reduction of £150 on average to bills at last year’s budget through the scrapping of two energy efficiency schemes, which began in April 2026.
But another rise of £149 could be expected in January, according to trusted forecaster Cornwall Insight, nine per cent higher than the October rate.
This would bring the price cap to £1,872 a year – and virtually cancel out the recent government initiatives.
The energy price cap is the maximum amount suppliers can charge for each unit of energy to those on a standard variable tariff, which applies to most households. It is expressed as an annual bill for the average home, but the headline figure is not the maximum yearly bill.
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The energy regulator updated its methodology to calculate the cap in July, reflecting lower average usage levels. Under its old methodology, the Cornwall Insight forecast would equal £2,107.
This is only a few hundred pounds lower than the £2,500 level at which the government decided to intervene in 2023 with its energy price guarantee. This kept costs at this level for nine months despite the price cap rising to more than £4,000 during the energy crisis sparked by Russia’s invasion of Ukraine, costing the government £2.9 billion.
Costs have now started to rise again, more steadily, sparked by the ongoing US-Iran war which began in February. The effective blockage of the Strait of Hormuz – through which 20 per cent of the world’s oil is shipped – has hit energy markets across the globe.
In the face of rising costs, the Resolution Foundation has urged Mr Burnham to introduce a targeted scheme to cut bills for households struggling over the winter.
Unlike the energy price guarantee, this would be means-tested based on income, saving an average of £175 for the households most affected by rising costs, the influential think tank said.
Energy secretary Miatta Fahnbulleh said: “Families will be understandably concerned about the cost of energy bills this winter, which is being driven up by the Iran War.
“Energy is an everyday essential and it needs to be affordable for everyone, which is why we have cut VAT on electricity bills from October, to give families some breathing space.
“This has limited the rise in the price cap and follows the £150 in costs we removed from bills earlier this year, and we will keep looking at what more we can do to protect families from unaffordable bills.”
