Relief is on the way for households struggling with high energy prices as the energy price cap is set to decrease, bringing average bills below £2,000. According to industry analysis, the annual gas and electricity costs for average homes will drop to £1,925 starting in October with the announcement of the energy price cap by regulator Ofgem. This news comes as a welcome change for consumers who have been dealing with rising prices across the economy, putting strain on their finances. Inflation is finally declining and wage growth is increasing, providing some relief in terms of spending power for workers. The Treasury has praised this positive step that will benefit millions of households, particularly after the government’s efforts to protect families from rising prices during the winter months. However, while energy prices are expected to decrease, borrowers may face higher monthly mortgage payments as interest rates are predicted to rise. This decrease in the energy price cap will mark the first time that typical bills have fallen below £2,000 since the previous summer. However, it’s important to note that prices will still be significantly higher than before the conflict in Ukraine, which caused a spike in energy prices. The energy price cap applies to those on standard variable tariffs, encompassing approximately 29 million households. Experts in the field note that while any decrease in bills is positive, energy forecasts still remain higher than pre-crisis levels. The increase in wholesale gas prices caused by the conflict in Ukraine has driven up energy prices globally, leading to the implementation of the energy price cap set by Ofgem. The cap is designed to ensure that suppliers pass on lower prices to consumers when they occur but allows for price increases when wholesale costs rise. Last summer, typical bills reached £1,971 and government intervention prevented them from rising further by capping household bills from autumn onwards. Although the Ofgem price cap exceeded £4,000 earlier this year, typical bills did not surpass £2,500 due to government subsidies. Falling wholesale prices led to a decrease in the Ofgem cap to £2,074 from July, eliminating the need for government subsidies. Cornwall Insight, an independent energy research firm, predicts that the price cap for October will further decrease typical bills if lower estimates of household energy usage are considered, resulting in a projected amount of £1,823. However, Cornwall Insight also anticipates that energy bills will likely increase again in early 2024 due to a recent rise in wholesale gas prices.
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