Energy Price Cap Set to Decrease in April Amid Persistent War Concerns
The energy price cap, regulated by Ofgem, is scheduled to fall by £117, or 7%, starting in April, bringing the average annual household bill to £1,641. This reduction marks a significant shift from the peak of £4,279 observed nearly a year after Russia's invasion of Ukraine, yet it remains £400 higher than pre-war averages. The announcement comes as the UK marks the fourth anniversary of the conflict, which has triggered unprecedented spikes in gas and electricity prices, forcing millions to make difficult choices between heating and eating.
Volatile Gas Markets and Policy Costs Complicate Outlook
While wholesale gas costs have decreased substantially from the levels that drove UK inflation above 11% in late 2022, they remain highly volatile. This instability is exacerbated by ongoing geopolitical risks, including the potential for further disruptions to liquified natural gas (LNG) flows if tensions escalate, such as a US attack on Iran. Europe's loss of most Russian oil and gas supplies means any threat to key shipping routes like the Strait of Hormuz could reignite an energy-driven cost-of-living crisis.
Policy costs add another layer of complexity to household energy bills. The chancellor has removed £150 per year from bills by stripping green levies and other charges, but these costs are now being reflected in general taxation. Additionally, investments in the UK's transition to net zero, including new nuclear projects and grid upgrades for renewables, continue to burden families. Ofgem estimates that network improvements alone will add approximately £108 to typical annual energy bills by 2031.
Future Projections and Economic Implications
According to energy consultancy Cornwall Insight, the price cap is not expected to decline further in the near term. The July cap is being set against more turbulent market conditions compared to April, with wholesale gas prices showing increased volatility since the beginning of the year. This outlook underscores the fragile state of the UK economy, still recovering from the damage inflicted by high energy prices. The ongoing war in Ukraine and broader geopolitical uncertainties pose significant risks that could undermine efforts to stabilize household costs and support economic resilience.
