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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Jeremy Hunt doesn’t rule out further energy bill support, after Ofgem lowers price cap; UK borrowing costs climb – as it happened

Ofgem United States United Kingdom
Ofgem is expected to announce a drop to its energy price cap on Thursday, but consumers may feel little benefit to their household finances.
Ofgem is expected to announce a drop to its energy price cap on Thursday, but consumers may feel little benefit to their household finances. Photograph: Jacob King/PA

Closing post

Time to wrap up… here are today’s main stories, starting with the UK energy price cap changes.

Great Britain’s energy price cap has fallen to £2,074 a year, but the average household will still pay almost double the rate for their gas and electricity than before costs started to soar.

About 27m households can expect a modest drop in energy bills this summer after the regulator Ofgem lowered the cap on the typical annual dual-fuel tariff to reflect a steep drop in global energy prices over recent months.

From July, when the change takes effect, households will see their average gas and electricity bill fall from the £2,500 a year level set by the government’s energy price guarantee.

However, those who struggled to pay their bills over the winter will feel little relief, because government top-ups worth £400 between October to March have come to an end.

Chancellor Jeremy Hunt has said he “is willing to do what it takes” and increase support for households if energy bills rise again this autumn.

He told Sky News:

“All I can say is that I think I’ve demonstrated in the autumn statement, and the spring budget where I extended the energy price guarantee for another three months, funded in part by a windfall tax on the oil companies, that we are willing to do what it takes.”

Households also face being charged an extra £10 a year on their energy bills from October to bolster the profits of their energy provider, under plans put forward by the regulator alongside the new cap.

The move to cut the energy price cap is expected to trigger a revival of switching between suppliers as firms bring back more competitive fixed deals – but consumers have been told not to expect “a deluge of cut-price offers”.

UK borrowing costs have jumped to their highest levels since the mini-budget panic last autumn, which has prompted several mortgage lenders to reprice deals….

Germany has sunk into a winter recession, after revised data showed its economy shrank over the last six months:

The founder of Starling Bank, Anne Boden, is to step down as chief executive in a surprise move that she said was designed to shield the online bank from potential concerns over a conflict of interest, because she is a major shareholder.

Shares in chipmaker Nvidia have surged 25% after it predicted a boom in demand for its computer chips to meet the needs of artificial intelligence products such as ChatGPT.

Cineworld has said it expects to exit bankruptcy protection in July as the troubled cinema group secured further backing from lenders for its restructuring plan.

The decision by United Utilities to hand more than £300m to shareholders has prompted fresh anger over water companies’ multimillion-pound payouts, at a time when the industry is under pressure to spend more on tackling leaks and stopping sewage pollution.

The bookmaker Paddy Power sent a promotional push notification to customers who had signed up to exclude themselves from gambling, inviting them to bet on a football match.

The founders of fast fashion retailer Boohoo.com doubled their pay to about £1m each last year as they were handed hefty bonuses despite missing financial targets.

Updated

Nvidia shares surge 25% after predicting AI-driven boom in chip demand

Shares in US chipmaker Nvidia have surged by a quarter in early Wall Street trading, after it. predicted a boom in demand for its computer chips to meet the needs of artificial intelligence products such as ChatGPT.

Nvidia’s share price is up 25%, giving it market valuation well over $900bn (£730bn) today, heading towards the $1trn market cap club.

The stock surged in after-hours trading on Wednesday, after Nvidia chief executive Jensen Huang identified artificial intelligence (AI) as a key driver of increased demand.

AJ Bell investment director Russ Mould explains that Nvidia beat forecasts with its latest financial results yesterday:

“Full-year sales and earnings fell in 2022 and Mr Huang’s guidance for Q1 of the new fiscal year had been cautious back in February, but NVIDIA simply breezed past analysts’ forecasts. Sales fell year-on-year, but by a lot less than expected, and net profit actually rose both quarter-on-quarter and year-on-year.

“First-quarter sales came in at $7.2 billion, compared to forecasts of $6.5 billion and the prior period’s $6.1 billion, to give investors grounds for believing that mid-2022’s stumble was just a blip. Net income reached $2.0 billion, against consensus forecasts of $1.5 billion, and the prior quarter’s $1.4 billion. Net profit even advanced from Q1 2022’s $1.6 billion.

Bulls of the stock could also draw encouragement from how inventory dropped by $500 million to $4.6 billion.

Updated

Nationwide raises mortgage rates

Bang on cue, mortgage lender Nationwide Building Society said it will raise rates on selected new fixed-rate and tracker mortgages by up to 0.45 percentage points with effect from Friday.

This follows the jump in UK government bond yields, covered earlier today, as traders anticipate further Bank of England interest rate increases.

Reuters has the details:

Some smaller mortgage lenders had already announced rate increases - as well as temporary product withdrawals - on Thursday in response to soaring funding costs, sparked by inflation data on Wednesday that raised bets on more Bank of England interest rate hikes this year.

“From tomorrow, Friday 26 May, we’re increasing selected fixed and tracker rates by up to 0.45%,” Nationwide said in an email to brokers, seen by Reuters.

“This includes selected rates across our New Business, Switcher, Additional Borrowing and Existing Customer Moving Home range.”

Updated

More households may need financial help if the Bank of England raises interest rates as high as the City now expects.

At 4.5%, interest rates are already the highest since 2008. But the money markets are predicting at least three more quarter-point increases, which would take Bank Rate up to 5.25%.

This follows April’s higher-than-expected inflation rate, of 8.7%

Price persistence remains a dominant theme in the UK – perhaps more so than any other G7 economy – warns Deutsche Bank’s chief UK economist, Sanjay Raja.

Raja explains:

Supply shocks, still de-anchored inflation expectations, fewer promotional discounting, and some potential margin building are likely keeping prices from normalising as quickly as traditional models would imply.

We now expect a slower descent to target. And with price and wage inflation now likely to remain stronger than anticipated, we raise our terminal rate forecast to 5.25% (i.e. consistent with several policy rules as we highlighted last month). Risk management considerations will, we think, force the MPC to push rates higher and further than previously intended. Moreover, we now shift our first rate cut call to Q2-24, with the easing cycle likely to remain shallow. Risks to our call are now balanced, in our view. But for all intents and purposes, we now see policy shifting firmly towards a ‘higher for longer’ era.

Dr Luciano Rispoli, Senior Lecturer in Economics at the University of Surrey, has warned that energy prices may not keep falling this winter – which would put pressure on the government to do more.

Rispoli says:

“With news that the energy price cap is set to come down, the pressing question is: will households pay cheaper energy prices? The answer is: not necessarily.

“If competition does not increase among energy providers, prices could go up – particularly in the winter due to higher demand. There is also the issue of the UK Government phasing out its support to consumers. Finally, there is still the risk that Russia’s war against the Ukraine will continue to further destabilise the market.

“So, I would advise people to be careful - things may not necessarily get better.”

Chancellor Jeremy Hunt: We're 'willing to do what it takes' on energy bill support

The chancellor has said he “is willing to do what it takes” to support households if energy bills rise again this autumn.

In an interview with Sky News, Jeremy Hunt was asked if he could guarantee he would step in if energy bills start rising again.

Hunt says:

We’ve shown in the past that where they are acute pressures that people face unexpectedly, we want to do everything we can to help families.

Hunt says he doesn’t want to predict how energy prices will develop. The government doesn’t expect a repeat of last year’s price surge, but it doesn’t know that for sure.

The chancellor said:

“All I can say is that I think I’ve demonstrated in the autumn statement, and the spring budget where I extended the energy price guarantee for another three months, funded in part by a windfall tax on the oil companies, that we are willing to do what it takes.”

Hunt was speaking after Ofgem lowered its energy price cap, to a level where average bills will be £2,074 a year from July, down from the £2,500 level in Hunt’s energy price guaranteee.

But as we covered earlier, Ofgem’s CEO told MPs this morning that it would only take one major hit to supplies, or a jump in demand, to push gas prices up.

And charities have warned that over 6 million households will still be in fuel poverty, even once the cost of gas and electricity falls in July.

Updated

Just in. The number of Americans filing new claims for jobless support has risen, but remains low by historic measures.

There were 229,000 new ‘initial claims’ for unemployment insurance last week, a jump of 4,000.

The previous week’s level has been revised down by 17,000, from 242,000 to 225,000, due to some fraudulent claims being removed.

Hundreds of workers at the largest soft drinks plant in Europe, in Wakefield, West Yorkshire, have voted to strike in a pay dispute.

The Unite union says staff rejected a pay deal worth 6%, which is a real terms pay cut given inflation was 8.7% in the year to April.

Workers are planning 14 days of strikes between Thursday 8 June and Thursday 22 June.

Unite regional officer Chris Rawlinson said:

“Coca Cola’s pay offer has fallen flat. The vast majority of the workforce have joined Unite to fight for fair pay. Now a series of strikes will inevitably shut down the production of Britain’s favourite soft drinks, including Coca-Cola.

But industrial action can still be avoided at Europe’s biggest soft drinks plant if bosses realise that they must pay workers a fair wage from the company’s enormous profits.”

CCEP Wakefield can produce 360,000 cans per hour, and 132,000 bottles per hour, and makes drinks including Coca Cola, Diet Coke, Coke Zero, Dr Pepper, Fanta, Fanta Lemon, Fanta Fruit Twist, Sprite, and the Monster and Relentless energy drinks.

It also makes Schweppes: Tonic, Diet Tonic, Bitter Lemon, Ginger Ale and Lemonade.

DBRS Morningstar places US credit ratings under review over debt ceiling worries

Credit rating agency DBRS Morningstar has put its rating for the United States on review for a downgrade on Thursday over Washington’s haggling over its borrowing limits.

The move comes less than 24 hours after Fitch, one of the big three rating agencies, issued a similar warning over the US debt ceiling deadlock.

DBRS said in a statement that:

“The Under Review with Negative Implications reflects the risk of Congress failing to increase or suspend the debt ceiling in a timely manner.

“If Congress does not act, the U.S. federal government will not be able to pay all of its obligations.”

DBRS says the precise timing of when the federal government will exhaust available cash and extraordinary measures, the so-called X-date, is “somewhat unclear”, but could be just days away….

Treasury Secretary Janet Yellen reiterated her warning on May 22 that the X-date could come as early as June 1. Judging from the latest data on daily net inflows into the Treasury General Account, we believe it is reasonable to assume the X-date could arrive within weeks if not days.

While we still expect Congress to raise the debt ceiling before Treasury runs out of available resources, there is a risk of Congressional inaction as the X-date approaches. DBRS Morningstar would consider any missed payment of interest or principal as a default.

Shares in energy company Centrica have jumped by over 4% this morning, after Ofgem proposed allowing suppliers to swell their profits.

The regulator is proposing increasing the amount of profit suppliers can make from 1.9% to 2.4% to prevent them going bust, because the cost of bailing out a failed supplier would be higher.

Under the plan, annual supplier profits would climb from £37 a household to £47 – meaning an extra £10 per year on energy bills.

Centrica, which owns British Gas, has jumped 4.2% to 118p per share.

Smaller mortgage lenders pull deal as UK borrowing costs rise

The jump in UK borrowing costs this week has forced some smaller British mortgage lenders to temporarily withdraw and repriced products for new customers, Reuters reports.

The move, following the spike in UK government bond yields yesterday and today (see earlier post), has some echoes of the turmoil in the mortgage market last autumn after the disastrous mini-budget.

Reuters reports that at least seven small lenders, mostly focused on the buy-to-let market, have pulled products or announced a repricing this week, according to mortgage brokers contacted by Reuters.

But none of the major high street banks have withdrawn or repriced products this week as a result of the market conditions, they add.

Fixed-rate mortgages are priced according to the UK government bond market, so a jump in the yield on two-year bonds, or gilts, has a knock-on impact on the mortgage market.

The two-year British swap rate, for example, has gained half a percentage point from 3.98% last Friday to 4.45% today, as traders anticipate further Bank of England interest rate rises to fight inflation.

Here’s our explainer on how the UK’s energy price cap works, and how the change announced this morning will affect households:

Ministers have been urged to reveal if they are considering “controls” to stop supermarkets unfairly profiting from food inflation.

Yesterday’s inflation report shows that food and non-alcoholic beverage prices are rising by over 19% per year, remaining stubbornly high even as the headline inflation rate fell.

In the Commons, Conservative MP Michael Fabricant urged ministers to ensure “supermarkets don’t take unfair advantage and excess profits from wholesale prices”.

He told MPs:

“My constituents in Lichfield and Burntwood and indeed the rest of the country are enduring high food inflation, as indeed they are in the rest of Europe.

“But what controls have we got, if that is the word, to ensure that supermarkets don’t take unfair advantage and excess profits from wholesale prices?”

Environment minister Mark Spencer replied:

“Retailers work to ensure strong competitive pressure remains in the marketplace, however the Competition and Markets Authority (CMA) announced last week that they are looking into the grocery sector to see whether any failure in competition is contributing to prices being higher than would be normally.

“The CMA will focus on areas where people are experiencing greater cost-of-living pressures, but he will also be aware that the Grocery Code Adjudicator will remain separate from the CMA and can take up investigations should they choose to do so.”

Labour MP Dan Jarvis meanwhile called on the Government to reveal whether it had a plan to “rapidly reduce food price inflation”.

Jarvis, MP for Barnsley Central, said:

“Food price inflation remains at the eye-wateringly high level of 19%, causing misery to millions.

Minister Spencer replied that the government was working closely with retailers, with producers, and with processors to strip out the impact of pressures on global markets from the Ukraine war, which drove up food and energy costs.

The world’s biggest insurance market Lloyd’s of London is steeling itself for climate protests ahead of its AGM this afternoon.

The meeting starts at 2pm, but is closed to the public and media, meaning activists who have so far disrupted the AGMs of Barclays, HSBC and Shell, will likely stay outside of the One Lime Street headquarters in London.

Climate activists say they are concerned about Lloyd’s members providing insurance for fossil fuel projects, which they say would not be able to go ahead without their underwriting services. (See also the students launching a career boycott of firms involved in carbon-heavy projects).

Lloyd’s told staff and members earlier this month that it would be putting up barriers and restricting entry through its main reception to “ensure the safety of everyone in he building” until the AGM was over.

The marketplace has also issued a defence this morning ahead of the protests:

“We support safe and constructive engagement with NGOs and those highlighting important issues like climate change.

Lloyd’s is committed to insuring the transition by providing the vital risk management solutions that will support societal resilience, transition and growth. We have aligned our climate approach and activities to government policy in achieving net zero by 2050.

As all insurance in the Lloyd’s market is underwritten by the managing agents, not Lloyd’s itself, it is for the individual businesses that operate in the Lloyd’s market to make their own business and strategy decisions.”

Rishi Sunak has said the reduction in the energy price cap was a “major milestone” in his goal of halving inflation.

The Prime Minister said:

“Welcome news that the energy price cap is coming down, reducing energy bills from July by nearly £430 on average per year.

“It marks a major milestone in our work to halve inflation.”

April’s smaller-than-expected drop in UK inflation, to 8.7%, has raised questions over whether inflation will actually halve by December to 5%, from 10.1% in January.

Ofgem's price cap in unit terms

We talk about the price cap in terms of its impact on typical household energy bills, but it actually regulates how much a supplier can charge per unit of energy.

For electricity, the unit rate will drop to 30p per kWh. That’s down from a unit rate of 51p per kWh set in April. There’s also a standing charge of 53p per day.

For gas, the unit rate has dropped to 8p per kWh, down from 13p per kWh, plus a standing charge of 29p per day.

A breakdown of Ofgem's energy price cap

So while the average bill will drop to £2,074, there’s no limit on the amount a customer can be charged.

[plus, the government’s energy price guarantee meant that the previous typical bill was £2,500 per year, not the current £3,280 price cap]

Ofgem: think before you fix your energy bill

The energy regulator is urging consumers to “think” before they fix their energy bills.

Ofgem warns:

With the lower price cap figure, fixed-rate energy tariffs might appear back on the market, but check if they are right for you.

Prices are still unpredictable & signing up for a fixed rate now might mean you miss out if prices fall.

Ofgem CEO Jonathan Brearley has told MPs that a range of options to support customers with energy bills are being considered by the energy sector.

He’s appearing before the Public Accounts Committee this morning to discuss the rescue of Bulb (the largest energy supplier to collapse when wholesale price surged in 2021).

Brearley says options under consideration include companies providing more access to support for vulnerable customers, or putting more customers who fall behind with their bills on affordable repayment plans.

Beyond that, there is a “decision for ministers about what else might be done”, Brearley says (perhaps a social tariff??).

Brearley also points out that this morning’s cut in the price cap, from over £3,280 to £2,074 in July, is a reduction of over £1,200 – which is roughly what people were actually paying on energy bills per year before the surge in prices.

Brearley says that the good news is that wholesale gas prices has been coming down for some time, he hopes that will continue, but cautions that the situation is very hard to predict.

It would only take one significant supply event, or a big change in international demand such as demand from China, for that situation to reverse, Brearley adds.

Updated

Calls for 'social tariff' for energy bills

Pressure is mounting for a “social tariff” for gas and electricity to be introduced to protect the most financially vulnerable.

Such a social tariff would help lower-income households with their energy bills, which will still be around double their pre-Ukraine war levels even once the Ofgem price cap drops in July to £2,074 per year for a typical household.

The Money Advice Trust, the charity that runs National Debtline and Business Debtline, backs a social tariff.

Joanna Elson CBE, chief executive at the Money Advice Trust, warns that the damage from unaffordable energy bills is already done, adding:

Energy is still significantly more expensive than when this crisis started, and more support is going to be needed.

“We need permanent solutions to this problem – including a social tariff for low income households, and a wider Essentials Guarantee to ensure Universal Credit always covers essential costs.

“It’s also vital that people can access the advice they need. I would urge anyone who is worried about their energy bills to seek free, independent debt advice from a service like National Debtline. Our expert advisers are there to help and talk you through your options.”

Emily Fry, economist at the Resolution Foundation, says there is a strong case for social tariff:

“Expected energy costs for a typical household this year are now on course to be around £2,100 – still up by almost 80 per cent on what families were used to pre-crisis.

“A return to the level of bills households paid pre-crisis isn’t arriving anytime soon. The case for developing more sustainable support with energy bills, such a social tariff for vulnerable households, therefore remains strong.”

Simon Virley CB, vice chair and head of energy and natural resources at KPMG in the UK, says energy suppliers still need greater clarity about the future direction of government policy for the energy market.

Virley adds:

Serious thought needs to be given to how best deliver sustainable competition in the long-term, whilst protecting those that need it from higher prices.

If that is a move to a social tariff for energy, on what basis would the eligible group be defined, and is there an ongoing role for the price cap in this scenario?”

Sana Yusuf, warm homes campaigner at Friends of the Earth, has warned that struggling households will still struggle to stay warm this winter, even once the price cap falls in July.

Yusuf says:

“Make no mistake, this announcement will make little difference to the millions of people who struggled to stay warm in cold, damp homes this winter. Most government energy bills support has already ended, and people will still be paying double what they were before the energy crisis.

“With the rate of food price inflation now outstripping energy, things will only get tougher for the hardest hit communities that have already suffered so much in the last year. What’s more, analysts say that average energy prices will not fall below pre-pandemic levels until at least the end of the decade. Amid all this, energy firms are still posting record-breaking profits.

“The injustice is breath-taking. People shouldn’t have to wait ten years before they can afford to pay for life’s basics. The government must not waste another summer that could be spent rolling out a street-by-street insulation programme. Not only will this bring down bills quickly and help to protect people from the cold, it’s vital to cut the emissions our homes produce if we’re to meet our climate goals.”

Shapps: Ofgem price cap is positive news in fight against inflation

Back on the Ofgem price cap announement, energy security secretary Grant Shapps says today’s reduction in bills is a ‘major milestone’ in the drive to halve inflation.

Shapps says:

“It’s positive households across the country will see their energy bills fall by around £430 on average from July, marking a major milestone in our determined efforts to halve inflation.

“We’ve spent billions to protect families when prices rose over the winter covering nearly half a typical household’s energy bill – and we’re now seeing costs fall even further with wholesale energy prices down by over two thirds since their peak as we’ve neutralised Putin’s blackmail.

“I’m relentlessly focused on reducing our reliance on foreign fossil fuels and powering-up Britain from Britain to deliver cheaper, cleaner and more secure energy.”

UK borrowing costs soar on fears of higher interest rates

UK government borrowing costs have climbed to the highest level since the aftermath of the mini-budget last year, after inflation failed to fall as much as hoped in April.

The yield, or interest rate, on two-year UK government bonds has jumped to 4.44% this morning, up from 4.35% last night.

That’s the highest since last October, when the markets were spooked by the chaos caused by Liz Truss and Kwasi Kwarteng’s package of unfunded tax cuts.

Benchmark 10-year and 30-year UK government bond prices have also fallen further in value, pushing up their yields.

The selloff comes as the City is gripped by anxiety that Britain’s inflation problem will force interest rates even higher, after the Consumer Prices Index fell by less than expected in April.

CPI dropped to 8.7% last month, higher than the 8.2% that was expected, while core inflation hit a 30-year high.

This is expected to prompt the Bank of England to keep raising interest rates, from 4.5% at present, up towards 5.5% by the end of this year.

Bond yields are also being pushed up by concerns that the US could default in June, if a debt ceiling deal can’t be agreed in time.

FTSE 100 hits eight-week low as Fitch threatens US downgrade

In the City, the UK’s blue-chip shares index has hit its lowest level in eight weeks.

The FTSE 100 lost almost 50 points to as low as 7577 points this morning, down another 0.6% after tumbling by 135 points on Wednesday.

DIY chain Kingfisher are the top faller, down 5%, with retailer Frasers Group (-3%) and luxury group Burberry (-1.8%) also in the top fallers.

Germany’s DAX and France’s CAC are both in the red too, down around 0.5%, with Germany’s fall into recession not helping the mood.

Worries over the US debt ceiling are mounting, after ratings agency Fitch put the United States’ credit on watch for a possible downgrade last night.

Fitch’s threat to remove the US’s gold-plated AAA rating came as talks over the country’s debt limit go down to the wire.

The US Treasury has warned that Congress must agree to raise the debt ceiling by 1 June or the US will run out of cash to pay its bills, resulting in a default that would cause widespread disruption in financial markets.

Last night, top Republican Kevin McCarthy warned that more time may be needed to reach a budget deal with President Joe Biden, as the two sides blamed each other for the deadlock:

Victoria Scholar, head of investment at interactive investor, says,

Rating agency Fitch has placed the US AAA rating on negative watch, citing concerns about the looming US debt ceiling deadline.

In 2011, S&P cut the US rating to AA-plus, which triggered a major market sell-off. The Democrats and Republicans have yet to find common ground and reach a deal, with hopes that the stalemate will finally end in the days ahead so that a catastrophic US default can be averted.

However time is ticking, prompting a bout of market nervousness as the deadline draws closer.”

Anne Boden, founder of Starling Bank, stepping down as CEO

CEO of the British Starling bank Anne Boden, in 2022
CEO of the British Starling bank Anne Boden, in 2022 Photograph: AFP/Getty and Alamy

UK challenger bank Starling has announced its chief executive is stepping down next month.

Anne Boden, who founded Starling Bank nine years ago, is to step aside as CEO on 30 June. She’ll be replaced by the bank’s chief operating officer, John Mountain.

Starling has also reported that revenues more than doubled in the last financial year, to 31 March, from £216m to £453m, while pre-tax profits jumped six-fold to £195m from £32m.

Starling now has 3.6m customers.

Anne Boden says today:

“When I started Starling in 2014, I was told no one ever starts a bank, nobody wins market share and you’ll never make a profit. Today’s results prove them wrong.

“We’ve succeeded in disrupting an entire industry. I’m immensely proud of these results, which are a testament to how far we have come as a team and how fast we’ve moved as a business.

“I have spent nearly a decade here as both the founder and CEO, a dual role which is unique in UK banking. It’s been all-consuming and I’ve loved every minute of it.

Ofgem chief defends letting energy firms make more profits

The head of energy regulator Ofgem has defended a decision to consider increasing the amount of profit companies can make on people’s bills.

Jonathan Brearley argued that firms need to have “more money in the bank” to build resilience over price shocks.

Taking questions on ITV’s Good Morning Britain from money expert Martin Lewis, who said consumers would be “staggered” by the measure, Brearley argued that energy firms needed to be financially resilient after the flurry of failures in 2021.

Brearley told GMB:

“So you’ll remember everything we went through in the end of 2021 and that put around £80 on people’s bills when 30 companies failed.

What we’re saying to every company is: you need to have good risk management and you need to have money in the bank so you can last through the sorts of price shocks we’ve seen over the last two years.

“Now they need to get that money from somewhere, so we’re putting in roughly an increase of about £10 a year to make sure companies are financially resilient.”

Here’s a clip of the interview:

Updated

Martin Lewis, of MoneySavingExpert.com, has also warned that energy bills are likely to “bounce back a bit” this coming winter.

He told the Today Programme:

“For every £100 you pay on energy now you’ll likely be paying £80 to £85 on energy from July. So that is a real manifest drop in energy bills.

“The truth is that’s probably it. From October it might go down a little bit more but then we expect it to bounce back a bit in January.

And if those are true, the reality is next winter, the winter coming, people will be paying roughly what they did last winter because rates are cheaper but they’re not getting the £66-67 a month support [from the government].

“So things will get slightly better and they’ll certainly stop getting worse, but by no means are we getting anything close to what we used to have. People will still be paying double what they used to pay before the energy crisis hit.”

Q: Will companies start offer deals below the price cap again?

Lewis expects to see “existing customer offers”, where you will get a bespoke offer from your firm, rather than going to a price-comparison website to get a better deal.

He explains that regulations mean companies don’t need to publish the details of their offers, so it’s hard to get a clear picture of exactly what’s available.

Germany in winter recession: what the experts say

Weak private and public consumption dragged the German economy into recession last winter, says Carsten Brzeski, global head of macro at ING.

Brzeski explains:

It’s not the worst-case scenario of a severe recession but a drop of almost 1% from last summer. The warm winter weather, a rebound in industrial activity, helped by the Chinese reopening and an easing of supply chain frictions, were not enough to get the economy out of the recessionary danger zone. Private consumption continued to suffer from still-high retail energy prices.

Looking beyond the first quarter, the optimism at the start of the year seems to have given way to more of a sense of reality. A drop in purchasing power, thinned-out industrial order books as well as the impact of the most aggressive monetary policy tightening in decades, and the expected slowdown of the US economy all argue in favour of weak economic activity.

On top of these cyclical factors, the ongoing war in Ukraine, demographic change and the current energy transition will structurally weigh on the German economy in the coming years.

Javier Blas says Germany’s fall into recession shows the impact of Europe’s energy crisis – the country scrambled to cut gas use after the Ukraine war began.

Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics, told clients:

“Germany did fall into recession at the end of last year, after all, as the shock in energy prices weighed on consumers’ spending,”

He added that it is unlikely that the German GDP will continue to fall in the coming quarters, “but we see no strong recovery either.”

Germany falls into recession

Europe’s largest economy has fallen into recession, as the economic disruption caused by Russia’s invasion of Ukraine hit growth.

New data released this morning shows that Germany’s economy has shrunk over the last two quarters – the technical definion of a recession.

German GDP shrank by 0.3% in the January-March quarter, revised figures show, rather than stagnating as first estimated.

That follows a 0.5% contraction in October-December.

Ruth Brand, president of the Federal Statistical Office, says:

“After GDP growth entered negative territory at the end of 2022, the German economy has now recorded two consecutive negative quarters.”

Statistics body Destatis reports that household spending fell.

It says:

The reluctance of households to buy was apparent in a variety of areas: households spent less on food and beverages, clothing and footwear, and on furnishings in the first quarter of 2023 than in the previous quarter.

There was also a fall in government expenditure, while investment was up and construction output also rose.

Earlier this week, the IMF ditched its prediction that the UK would fall into recession this year.

Updated

Martin Lewis on the ‘Good Morning Britain’ TV show.
Martin Lewis on the ‘Good Morning Britain’ TV show. Photograph: Ken McKay/ITV/Shutterstock

Martin Lewis, founder of MoneySavingExpert, has welcomed the news that the Ofgem price cap will drop in July.

He says:

From 1 July, energy bills will no longer be subsidised by the state, as Ofgem is thankfully dropping the Price Cap below the Government’s Energy Price Guarantee for the first time since it was introduced. Bills will drop by an average 17%, meaning for every £100/mth people pay today, they will typically be paying £83/mth from July.

“This will be a relief for many, yet most will still be paying more for their energy than during the winter. This is because, apart from for those with high use, the drop in the rates doesn’t make up for the £66 per month state support people got until April – and most are on monthly direct debit, which means they pay the same in summer as winter.

Overall, this still leaves people paying double or more what they did before the energy crisis hit in October 2021.

Lewis argues that the government could provide targeted support to help struggling families in the coming winter:

“The fact the state is paying far less than planned to support people’s bills means there is some wriggle room here for targeted support for another hard winter coming for those who are just above the benefits threshold. Though I’m not holding out much hope that it’ll happen.

“The moral hazard of high standing charges continues too. The reduction is all off the unit rate. It will still cost roughly £300/yr just for the facility of having gas and electricity.

This perversely means the less you use, the less you save. I and many others have pushed Ofgem on this, to little avail, though it is launching a consultation on operating costs which impact this and may help a bit in the future.”

Updated

6.6m households face fuel poverty under new price cap

National Energy Action have calculated that there will still be 6.6 million households in fuel povert once the price of energy falls in July, under the new price cap, down from around 7.5m.

The charity points out that energy bills are still approximately almost double the level of October 2021.

And crucially, bills from July will be comparable to last winter as the Government has withdrawn support worth £400 to each household.

National Energy Action’s chief executive Adam Scorer says:

“Coming out of winter, most people will welcome any respite from record high prices, but it still leaves prices more than two-thirds higher than the start of the energy crisis and two million more households trapped in fuel poverty.

More than two and half million low income and vulnerable households are no longer receiving any government support for unaffordable bills. For them, the energy crisis is far from over.”

NEA also provide advice and support for those struggling – click here for more details.

Full story: Britain’s energy price cap falls to £2,074 but households will see little relief

Great Britain’s energy price cap has fallen to £2,074 a year, but the average household will still pay almost double the rate for their gas and electricity than before costs started to soar, our energy correspondent Jillian Ambrose reports.

Around 27m households can expect a modest drop in energy bills this summer after the regulator Ofgem lowered the cap on the typical annual dual-fuel tariff to reflect a steep drop in global energy prices over recent months.

From July, when the change takes effect, households will see their average gas and electricity bill fall from the £2,500 a year level set by the government’s energy price guarantee.

But households who struggled to pay their bills over the winter will feel little relief, because government top-ups worth £400 between October to March have come to an end.

The average energy bill will remain almost double the level seen in October 2021 – when Russia began restricting supplies of gas to Europe in a move that sent wholesale prices soaring. Before the energy crisis, the typical household paid £1,271 a year for gas and electricity.

Households could still face dual-fuel bills above £2,074 if they use more than the typical amount of energy because Ofgem’s cap limits the rate energy suppliers can charge for each unit of gas and electricity – not the total bill.

More here:

Ofgem's Brearley: We have faced the biggest energy shock in our history.

Q: Yesterday, energy firm SSE reported its profits have almost doubled in the last year (to an adjusted pre-tax profit of £2.18bn). Does that suggest the market might be rigged?

Ofgem CEO Jonathan Brearley points out that SSE don’t have a domestic retail business in the UK, so they don’t have the business that we’re regulating through the price cap.

He says there has been huge turbulence in the market with the cost of commodities internationally going up dramatically.

That came as Russia started withdrawing their gas from the market, and the whole of Europe making plans to move away from Russian gas.

That means the market is tighter and that does mean that prices are higher.

Brearley adds that the situation is starting to stabilise, and repeats that he hopes to see “competitive fixed price deals reenter the market”.

He concludes:

We have faced the biggest energy shock in our history. But things are improving.

Q: Wholesale gas prices have been falling for months – why is that benefit only being implemented from July?

Brearley explains that energy companies are buying energy ‘forward in the market’..

So right now they’re not buying our power and energy for July. They’re buying it for later on in the year. That means this does take time to feed through.

This chart shows how the month-ahead cost of UK gas has indeed plummeted – from over 600p per therm last August to 64p per therm today.

A chart of the month-ahead UK wholesale gas price
A chart of the month-ahead UK wholesale gas price Photograph: Refinitiv

Brearley adds that we are not in the same world as in 2015 or 2016, before the price cap was introduced.

Then, people talked about prices “going up like a rock and then prices coming down like a feather”.

Today, the formula Ofgem uses when prices go up is broadly the same as the formula for when prices come down. So the benefits of the current low prices should be felt for longer.

Q: But millions of people are suffering – shouldn’t Ofgem be lowering the cap further?

Brearley tells the BBC’s Today programme that Ofgem’s job is to ensure that costs are fairly reflected in the price paid by customers. That’s what its doing.

Ofgem recently moved to a quarterly price cap change – rather than every six months.

Brearley says that change means cost reductions are being passed through much more quickly than they otherwise would.

He says there is “much bigger societal debate” about how to support families who are struggling with many househoold bills, not simply energy costs.

Ofgem CEO Jonathan Brearley is now explaining today’s price cap announcement on Radio 4’s Today Programme.

Q: National Energy Action think 6.5 million people will still live in fuel poverty under the new price cap – why is it so high?

Brearley says there has been a dramatic fall in the cost of energy, leading to this morning’s reduction of around £420 per yer (for a typical annual bill).

He says:

The reason why is it still high is, ultimately, although that drop is dramatic, it is not as dramatic as the rises we saw between 2021 and 2022.

Brearley adds that the energy market is stabilising, and Ofgem is seeing signs that customers could start moving to more competitive energy offers (which dried up when wholesale energy prices began surging, and many smaller suppliers collapsed].

He says:

The market is stabilising and we are seeing signs that for example, switching may return, so we may see better offers even than the price cap.

But ultimately, prices are higher than they were before. and you’re right, many families will struggle.

Brearley adds that Ofgem, the industry and the government need to work together to support those vulnerable customers.

Q: If one of your key jobs is to stand up for consumers, and 6.5m will be in fuel poverty, are you doing your job properly?

Brearley says Ofgem’s job is to regulate the energy price, to regulate the market and to regulate the companies involved. But it can’t offer financial support to customers.

He says that six or nine months ago, people though the price cap could be £3,000, £4,000 or evern £5,000 today.

The market is moving a step in the right direction. but yes, there is still more to do.

Ofgem's Brearley: Bills will still be troubling for many people

Ofgem CEO Jonathan Brearley has warned that energy prices are unlikely to fall to their pre-crisis levels [in 2019, the cap was £1,254 per year].

Brearley says:

“After a difficult winter for consumers it is encouraging to see signs that the market is stabilising and prices are moving in the right direction. People should start seeing cheaper energy bills from the start of July, and that is a welcome step towards lower costs.

“However, we know people are still finding it hard, the cost-of-living crisis continues and these bills will still be troubling many people up and down the country. Where people are struggling, we urge them to contact their supplier who will be able to offer a range of support, such as payment plans or access to hardship funds.

“In the medium term, we’re unlikely to see prices return to the levels we saw before the energy crisis, and therefore we believe that it is imperative that government, Ofgem, consumer groups and the wider industry work together to support vulnerable groups. In particular, we will continue to work with government to look at all options.”

Updated

This chart, from Ofgem, shows how typical energy bills will drop when the price cap is next adjusted in July:

Ofgem’s price cap
Ofgem’s price cap Photograph: Ofgem

As you can see, Ofgem’s cap on energy bills will come down from £3,280 per year to £2,074 per year for a typical user.

But, the government’s own energy price guarantee limits a typical bill at £2,500/year, so the effective reduction is smaller.

Updated

Today’s update means that, for the first time since the global gas crisis took hold more than 18 months ago, prices are falling for customers on default tariffs.

Ofgem says:

The savings can now be passed on to customers more quickly, thanks to Ofgem now updating the price cap quarterly rather than every six months.

At its peak, the price cap reached £4,279 and, whilst today’s level is lower than last quarter, it is still above the levels it was before the energy crisis took hold, meaning many households could still struggle to pay bills.

Ofgem cuts price cap to £2,074 from July

Newsflash: Average energy bills will fall this summer.

Regulator Ofgem has just announced that Great Britain’s energy price cap will fall from July, to £2,074 a year for a typical household – a saving of over £400 per year.

The move means around 27m households can expect a modest drop in energy bills this summer. Ofgem is lowering the cap on the typical annual dual-fuel tariff to reflect a steep drop in global energy prices over recent months.

From July, when the change takes effect, households will see their average gas and electricity bill fall from the £2,500 a year level set by the government’s energy price guarantee.

But the average household will still pay almost double the rate for their gas and electricity than before costs started to soar.

And as this is a cap on energy unit costs, there’s no limit on the bills a household could run up; they’ll be lower than without the cap, though.

Updated

Full story: Millions will face fuel poverty despite Ofgem move to cut energy price cap

Around 6.5m households will still be in fuel poverty, analysts estimate, even once bills fall in July.

At more than £2,000, typical energy bills will remain almost double the level they were at before Russia began restricting gas supplies to Europe as it prepared to invade Ukraine. In October 2021, the typical household paid £1,271 a year for gas and electricity, my colleague Jillian Ambrose explains.

In a forecast that will alarm hard-pressed families, Cornwall’s analysts have warned they do not expect bills to return to pre-2020 levels “before the end of the decade at the earliest”.

Peter Smith, a director of National Energy Action, a fuel poverty charity, said:

“It is good news energy prices are no longer spiralling but the energy crisis is far from over.”

More here:

Sharon Graham, the leader of the Unite union, has accused Ofgem of being the “regulator that won’t regulate”, saying it is “no longer fit for purpose”.

Even before the new price cap announcement hits the wires at 7am, Graham says:

“The price cap may be down but energy bills for millions of households will still be crippling.

“In this moment of crisis we needed a powerful energy regulator which would be on the front foot fighting the profiteering of the UK’s energy companies. Instead we have a regulator that won’t regulate, rampant Big Energy plundering the economy and a government that’s permanently looking the other way.

Unite has previously called for a clamp down on “excessive” profits generated by regional electricity distribution network operators, who bring electricity to UK homes

Graham also cites the scandal of debt collectors breaking into homes to fit energy meters for vulnerable customers, saying:

“The pre-payment meter scandal demonstrates for all those who haven’t realised that Ofgem is no longer fit for purpose. No wonder half the board have been sent on their way. It’s time to face facts.

Time to bring the energy profiteers into public ownership. That would create a real Ofgem.”

Introduction: Ofgem to announce energy price cap today

Good morning.

The energy regulator is poised to announces a cut to household bills this summer, but UK households could little relief in the ongoing cost of living crisis.

Ofgem is expected to lower the energy price cap by several hundred pounds a year, when it is next adjusted in July. The announcement is due at 7am.

Analysts at consultancy Cornwall Insight predicts the price cap will fall to £2,054 a year for a typical household, following the drop in wholesale energy prices in recent months.

The cap, which was meant to protect consumers across Great Britain from rising prices, soared last year after the Ukraine invasion drove up oil and gas prices. This prompted the government to step in with its own energy price guarantee, effectively a lower cap than Ofgem’s.

Since April, the Ofgem cap has been set at an annual level of £3,280 for the average household on a dual-fuel tariff, which would be painfully high. But the government’s energy guarantee means average bills are lower, at £2,500 a year for a typical customer.

That EPG will rise to £3,000 from July – meaning the Ofgem cap (assuming it does fall today) will determine bills.

Importantly, the cap is on the unit charge of energy – NOT the maximum a household can be billed (which is still determined by how much energy they use).

And if the Ofgem cap does drop to around £2,000 per year, as expected, households will still be paying much more for energy than before the Ukraine war – even though European wholesale gas prices have hit 22-month lows in May.

Households which struggled to pay their bills over the winter will continue to be squeezed as government payments worth a total of £400 between October to March this year have come to an end.

Campaigners from the End Fuel Poverty Coalition have warned that households hoping for a sharp drop in their bills may find little difference compared with the rates they paid over winter.

Simon Francis, a coordinator at the coalition, said last week:

“People now face many more months with bills remaining stubbornly high. This will see them continue to use up their savings for everyday items, run up credit card bills, fall into debt with energy firms or turn to food banks as the cost of living crisis deepens.”

Although inflation did fall yesterday, prices continue to rise faster than economists expected, driven by essentials such as food.

The agenda

  • 7am BST: Ofgem announcement on UK energy price cap

  • 9.30am BST: Latest realtime UK economic data from the Office for National Statistics

  • 11am BST: CBI distributive trades survey of UK retail sector

  • 1.30pm BST: US weekly jobless claims figures

  • 1.30pm BST: Chicago Fed national activity index

Updated

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