An energy price crunch is coming later this year
Key Points
- Energy prices are set to rise by 13% in July, the largest jump since 2022, thanks to the conflict in Iran.
- While the effects of increased energy bills may be mitigated in the summer months, British households will feel the full impact closer to the end of the year.
- The government is expected to provide targeted support to low-income households to help mitigate the worst of this impact on those whose budgets are already stretched.
The warm summer months might provide some relief from rising energy prices, but British households will face a reckoning later this year.
This week, Ofgem announced that the energy price cap would rise by 13% from 1 July, from £1,641 to £1,862 per year.
This rise, which will add £21 to a typical household’s energy bill, is the largest jump seen since 2022 and is a direct result of disrupted energy markets caused by the closure of the Strait of Hormuz.
KPMG UK Global Lead Partner Clare Maio said that while consumers have been preparing for higher prices since the Iran war began, the true impact on their budgets would be felt in the colder months.
“Consumers have been bracing for higher energy prices ever since the war in Iran broke out, with this increase putting further pressure on already stretched household budgets,” she said.
“While the current sunnier weather provides some relief as households historically use less energy over the summer months, it heightens concern about affordability later in the year when demand rises again.”
Later this year, when temperatures begin to cool and energy demand increases, the government is expected to announce some support for those whose budgets are most stretched by rising energy bills.
“With suppliers still tackling mounting energy debt from the last energy crisis, there is growing urgency to pair short-term assistance for those households most in need with longer-term measures that improve energy efficiency across the board and diversifies our energy sources to reduce exposure to future price shocks,” Maio said.
While investing in alternative energy is a useful long-term strategy to reduce the effects of this sort of disruption on UK households, immediate support is most likely to be targeted at low-income households.
The Resolution Foundation think tank has urged the government to avoid the blank-cheque approach it took during the last energy price shock, and it should be temporary.
