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The Guardian - UK
The Guardian - UK
Business
Alex Lawson Energy correspondent

UK energy bills forecast to fall below £2,500 as gas prices tumble

Warm clothes alongside a radiator with boots in the foreground
Household bills remain substantially higher than before the start of the energy crisis in 2021. Photograph: Linda Nylind/the Guardian

Energy bills are expected to fall below £2,500 from July as a drop in wholesale gas prices eases some of the pressure on Britons struggling to cope with the cost of living crisis.

Analysis by Investec has forecast that the cap on annual energy bills will fall to £2,478 for an average bill in the summer, down from its previous estimate of £2,640 earlier this month, and average £2,500 a year in the second half of 2023.

The prediction is significantly lower than the consultancy Cornwall Insight’s forecast last week of bills settling at about £2,800 from July.

Wholesale gas prices have fallen in recent weeks as mild weather and high levels of gas storage in winter has allayed some concerns over future shortages of Russian gas. However, bills remain far higher than before the start of the energy crisis in 2021, when households were paying about £1,200.

Investec analyst Martin Young said the tariff cap estimates had fallen again after wholesale prices dropped, and now stand at about £2,500 for the second half of 2023.

UK household energy prices are capped under the government’s energy price guarantee (EPG) at £2,500 for a typical household – although there is no limit on the amount a household can be charged, depending on usage. That cap rises to £3,000 in April for a further 12 months.

The fall in wholesale gas prices will reduce the cost of the EPG to the Treasury. Investec forecasts that the cost of the policy for the forthcoming financial year to be £2.3bn, down from about £3bn previously.

This week the government announced the support for companies’ energy bills would be reduced from April to cut the Treasury’s bill.

The UK day-ahead gas contract traded 158p a therm on Thursday, having hit more than 500p a therm in August after Russia squeezed European gas supplies. The price hit 400p a therm during the cold snap in early December, but has since fallen.

European gas prices have dropped to levels not seen since before Russia invaded Ukraine last February.

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