Energy bills set to hit a three-year high - what does it mean for your bills

Energy bills are set to hit their highest level in three years this October, according to Cornwall Insight's latest forecast.

The energy consultancy expects Ofgem's price cap to rise by around 4%, taking the annual bill for a typical dual-fuel household paying by direct debit to £1,729, up from £1,663.

That's an increase of £66 a year.

The forecast comes just a week before Ofgem is due to announce the October price cap, and is based on Cornwall Insight's final assessment of the wholesale energy market. On a like-for-like basis, it would put household energy costs at their highest level since July 2023.

Why are energy bills going up?

The increase is being driven largely by higher wholesale energy prices.

Cornwall Insight says uncertainty around the US-Iran conflict has pushed wholesale prices for the coming winter to their highest level in almost four years. European gas storage levels are also low for this point in the year, while demand has been pushed higher by the heatwave across Europe.

There have also been production outages in Norway and strong demand for liquefied natural gas from Asia.

All of this puts upward pressure on the cost of supplying energy to households in the UK.

What does the £1,729 figure mean?

It's important to remember that the price cap isn't a limit on how much you spend on energy.

It sets the maximum rates suppliers can charge for gas and electricity on standard variable tariffs. Your actual bill depends on how much energy you use.

The definition of a 'typical' household has also changed. Ofgem introduced new Typical Domestic Consumption Values in July, based on lower assumed annual energy use.

Under the new definition, the £1,729 figure reflects an annual consumption of 2,500 kWh of electricity and 9,500 kWh of gas.

Using the previous consumption figures, Cornwall Insight's forecast would put the annual bill at £1,941 - £212 more than the new calculation.

That's why it's important to look beyond the headline figure when comparing the latest price cap with previous years.

What about the electricity VAT cut?

The October increase comes despite the government's decision to remove VAT from household electricity bills from October.

That should reduce bills, but Cornwall Insight says the benefit is being outweighed by the rise in wholesale energy costs.

So the VAT cut won't prevent bills from rising this autumn.

Could bills rise again in January?

Cornwall Insight's current forecast points to another rise in January.

That isn't a final prediction. Wholesale energy prices remain volatile, and the consultancy expects its January forecast to change before Ofgem announces the next price cap in November.

What can you do?

There's no need to make big decisions based on a forecast alone, but there are some sensible things to check.

Know what you're paying. Look at your latest energy bill and check your unit rates and standing charges.

Check your tariff. If you're on a standard variable tariff, see what other options are available. If you're considering fixing, compare the overall cost rather than assuming a fixed deal will automatically be cheaper.

Review your winter budget. Think about how much you normally spend on energy during the colder months and the impact that higher prices could have on your budget.

Look at your energy use. Reducing the amount of energy you use is one of the most straightforward ways to reduce your bill. Heating, hot water and appliances can all make a difference over the course of a year.

And if you're already struggling to pay your energy bills, don't wait until you fall behind. Contact your supplier and ask what support is available.

Why the three-year high matters

The headline isn't simply that energy bills are going up again.

It's that they are heading back to their highest level in three years.

That matters because energy is one of those household costs that's difficult to avoid. When prices rise, there isn't always an easy way to reduce what you spend, particularly for people who need to heat their homes more during the winter.

For lots more information about how to save on energy bills or what to do if you’ve fallen behind, visit our energy hub: Energy