The energy price cap in Great Britain will fall by £238 to £1,690 this spring thanks to a mild winter and lower gas prices, easing pressure on household finances.
Set by energy regulator Ofgem, the cap reflects the average annual bill for 29 million households in England, and takes effect from April. It is a 12.3% reduction from £1,928 in the current quarter.
In a boost to the poorest households, Ofgem also confirmed it would equalise standing charges – the set fee paid before any gas or electricity is used - meaning customers with prepayment meters will no longer be charged more for their connection than those on credit or direct debit.
Wholesale gas prices have fallen as a mild winter in Europe reduced demand, helped by plentiful supplies of liquified natural gas in Europe and Asia, leading to a fall in household bills.
The average household will still pay far more for their gas and electricity than before the energy crisis, which started in 2021 and escalated after Russia stopped piping gas to Europe following the full-scale invasion of Ukraine. The rate is at its lowest since March 2022, but far more than the £1,138 for customers paying by direct debt in the summer of 2021, before the crisis began.
The campaign group National Energy Action said the fall in prices would not stop 6 million households from being “trapped in fuel poverty”.
The cap will be adjusted again in July. It does not limit the amount customers pay: those who use more energy pay more.
The energy consultants Cornwall Insight expect the cap to fall again in July, to £1,462, before rising to £1,521 from October.
Analysts had feared disruption to cargoes in the Red Sea could push gas prices significantly higher but rises have not materialised so far.
After pressure from fuel poverty campaigners, Ofgem said that, from April, households on prepayment meters will no longer pay a higher standing charge. This means metered consumers will save about £49 annually, while direct debit customers will pay £10 more each year.
Jonathan Brearley, the chief executive of Ofgem, said: “There are still big issues that we must tackle head-on to ensure we build a system that’s more resilient for the long term and fairer to customers.
“That’s why we are ‘levelising’ standing charges to end the inequity of people with prepayment meters, many of whom are vulnerable and struggling, being charged more upfront for their energy than other customers.”
The regulator said it had adjusted the calculation of the cap to allow a temporary additional payment of £28 a year to make sure suppliers had sufficient funds to support customers who were struggling.
The charge will be added to the bills of customers who pay by direct debit and not those on prepayment meters. It will be partly offset by the end of an £11-a-year charge that was added to cover debts related to the pandemic.
The energy secretary, Claire Coutinho, welcomed the fall in the cap, describing it as a “milestone”, and said the government would examine how standard energy deals should work to pass on the cheapest electricity costs. The government will put £10m into testing new technologies and tariffs to “make the most of cheap, low-carbon power”, she added.
In late 2022, the government stepped in to subsidise consumer and business energy bills, as well as wider support for low income households. However, that support has tapered off and not been replaced.
Dame Clare Moriarty, the chief executive of Citizens Advice, said: “The government promised a new plan for energy bill support by April 2024 but will miss its own deadline. And the withdrawal of cost of living payments this spring will make it so much harder for many of those already finding it difficult to make ends meet. Without action, people will face a cycle of winter crises year after year.”
The shadow energy secretary, Ed Miliband, said bills were “still far too high for hardworking families”.
Energy prices have been a significant driver of inflation over the last two years, forcing the Bank of England into its most aggressive round of interest rate increases in decades.
On Friday, analysts at ING said the fall in the cap could pull inflation down from 4% to 1.4% in June, increasing the likelihood of a summer interest rate cut.
