The UK energy regulator, Ofgem, announced on Wednesday that household energy costs in Britain are set to rise to their highest level in two years this summer, influenced by supply constraints stemming from the US-Israel conflict with Iran.
Ofgem stated that the household energy price cap will increase by 13% in July, with electricity prices rising approximately 5% and natural gas bills surging by 24%. The price cap, which limits what energy utilities can charge households, is reviewed every three months.
Ofgem's Chief Executive, Tim Jarvis, commented, "Today's price adjustment reflects the ongoing volatility in global energy markets. This means that the increase in wholesale gas prices, driven by the continuing conflict in the Middle East, is impacting the prices we pay for energy."
Currently, the price cap sets the typical annual dual-fuel bill for gas and electricity at £1,641. Starting in July, this figure is expected to rise by about 13.5% to £1,862, marking the highest level since early 2024.
Since Ofgem's last review, which lowered the price cap by 7%, UK households have reduced their energy consumption, with electricity use down by 7% and gas use by 17% on average. Ofgem noted that from July, it will incorporate this reduced consumption into its price cap calculations. Presently, 40% of energy accounts in the UK are on fixed-term contracts, shielding them from the July price hike.
However, Ofgem anticipates another adjustment to the price cap in October. Energy analysis firm Cornwall Insight forecasts that under the current framework, the October price cap could reach £1,899.44, an additional 2% increase from the July cap.
The UK's reliance on imported energy makes it vulnerable to global oil and gas supply bottlenecks and the resulting price surges. Since the outbreak of the Iran conflict and the effective closure of the key shipping chokepoint, the Strait of Hormuz, Brent crude prices have risen by approximately 33.5%, while June natural gas futures on the Dutch TTF exchange have increased by nearly 50%. Although prices have retreated from wartime peaks, they remain elevated and highly volatile.
Ofgem pointed out on Wednesday that even after the July increase, bills will remain significantly lower than during the peak of the 2022 energy crisis, when the government capped annual bills at £2,500.
Nevertheless, UK Energy Security Secretary Ed Miliband posted on social media platform X that Ofgem's latest update adds to the cost pressures facing British households. He stated, "A price cap increase driven by a war we did not choose is extremely unwelcome news for households across the country. We will continue to monitor the situation ahead of winter and plan for all contingencies. In the short term, de-escalating this conflict to reduce oil and gas prices is crucial."
The UK is not the only European country feeling the impact of energy shocks from the Iran conflict. Last month, Germany prohibited gas stations from changing fuel prices more than once per day, and recent official data showed that energy prices in the eurozone rose by 10.8% year-on-year in April.
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