From 1 July, the energy price cap set by energy regulator, Ofgem, will fall from £3,280 to £2,074. Prices are currently capped at £2,500, but this further reduction will help home-based employees and any small business owners who work out of residential accommodation.
In October last year, the government introduced a temporary energy price guarantee that has limited the annual gas and electricity costs for a typical household. This cap was set to increase from £2,500 to £3,000 this July, however, the lower energy price cap of £2,074 will now apply instead.
Impact of the cap
The energy price cap is set quarterly, so the limit of £2,074 will apply from 1 July to 30 September 2023.
- Customers on standard variable tariffs with typical consumption will see their bills fall in line with the cut in prices.
- However, annual bills are not capped as such. Households with higher energy use will pay more than the cap, with lower energy users paying less.
The £3,000 energy price guarantee will remain in place as a safety net until 31 March 2024 just in case energy prices increase above this level.
Even with the price reduction from 1 July, energy prices will still be almost double what they were before costs started to soar.
Fixed energy deals
There are virtually no fixed energy deals currently available, although they might return now that prices have started to fall.
The energy price cap is forecast to remain around £2,000 until March 2024, so any fixed rate deal must be compared to this rate. A fixed rate deal will provide certainty, but the downside is being locked in for a fixed term should prices fall. An exit fee – which can be quite substantial – is normally charged to end a fixed deal early.
A government briefing of the energy price guarantee and how it operates alongside the energy price cap can be found here.