Experts at Cornwall Insight have forecast energy bills to fall by £138 from April.
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Millions of household energy bills will rise from today, just as a swathe of cold health alerts have been issued for large areas of the UK. The 0.2 per cent increase to Ofgem’s energy price cap will equate to a rise of about 28p a month for the average household in Scotland, England and Wales on a standard variable tariff.
This amounts to an average overall bill of £1,758 a year, up from the current £1,755. However experts at Cornwall Insight have forecast energy bills to fall by £138, or 8 per cent, to £1,620 a year when the cap is next updated in April thanks to UK Government measures announced in the Autumn Budget.
Chancellor Rachel Reeves said £150 would be cut from the average household bill from April by scrapping the Energy Company Obligation (Eco) scheme introduced by the Tories in government.
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Wholesale energy prices have also dropped in recent weeks, which is set to keep a lid on price hikes from April, Cornwall Insight said.
Regulator Ofgem said the New Year’s Day increase to the cap, which was announced in November, was being driven by the funding of nuclear power projects and discounts to some households’ winter bills.
This included funding the UK Government’s Sizewell C nuclear power plant in Suffolk – with an average of £1 added to each household’s energy bills per month for the duration of the £38 billion construction.
An increase to standing charges – the amount consumers pay per day to have energy supplied to their homes – was also largely due to costs linked to the UK Government’s Warm Home Discount scheme.
Around 2.7million more low-income households, including 900,000 families with children, are eligible for the £150 energy rebate this winter.
However, the regulator said the new price cap was £37 lower than a year ago when adjusted for inflation.
Ofgem’s price cap sets a maximum rate per unit and standing charge that customers can be billed when they are not on a fixed tariff. However, it does not limit total bills because households still pay for the amount of energy they consume.
The price cap increase comes just as a yellow warning for snow and ice has been issued for parts of Scotland north of the central belt from 6am on New Year’s Day until midnight on January 2.
Meanwhile, amber cold health alerts have been issued for the North East and North West of England, which are due to remain in place until noon on January 5, with temperatures expected to fall to 3-5C.
Ned Hammond, the deputy director of Energy UK, which represents suppliers, said: “While the new price cap coming into force only includes a small rise, it still means energy bills are too high for too many households. Gas prices may have declined in recent months but remain higher than previous years, while increasing policy costs are also adding to bills.
“The Chancellor’s intervention in the Budget to move a significant amount of policy costs into taxation was welcome and will provide much needed relief for households across the country when this comes into effect in April.
“However, even with this intervention, energy bills are expected to remain well above pre-energy crisis levels. With over six million households in fuel poverty and domestic energy debt reaching record highs of around £5.5billion, a comprehensive plan is needed to further bring down bills and truly address these challenges.”
Which? energy editor Emily Seymour said: “As we head into the coldest months of the year, many households will be concerned that the energy price cap will increase slightly in the new year.
“There are several deals on the market for lower than the price cap so now is a good time to shop around if you’re looking to fix. As a rule of thumb, we’d recommend looking for deals cheaper than the current price cap, not longer than 12 months and without significant exit fees.
“If you’re on a variable tariff, make sure to submit a meter reading to ensure you pay the cheaper rates for any energy used before the new price cap takes effect.”
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “Households will welcome a cut in April, bringing the cap to its lowest level since 2024. That’s a step towards the Government’s £300 reduction target by 2030 and will ease some pressure on both families and policymakers.
“But we need to be clear – costs aren’t vanishing, they’re shifting. Moving the Renewables Obligation from bills to taxation may feel like a win, but ultimately, it’s still going to be paid by the public.
“Crucially, as we move forward, vulnerable households must be protected. Cutting bills today is welcome, but without targeted support and a clear plan for fairer funding, the benefits of net zero could bypass those who need them most.”