Households hoping for relief from high energy bills may face another setback. As the Iran conflict escalates, industry analysts now expect the UK energy price cap to rise in July, potentially pushing the typical annual household bill to around £1,800. Wholesale gas prices have increased sharply, with the impact already feeding into expectations for the next Ofgem price cap period.
Frustratingly, any increase would come just months after the price cap fell during the April-June period. For many consumers, that drop suggested the worst of the energy crisis might be over. The latest forecasts suggest that optimism may have been premature.
In this article, we’ll look in more depth at this news.
Middle East tensions
The latest price pressures are rooted in events far beyond the UK energy market. Gas prices surged after the Iran crisis intensified, triggering fears about global supply disruption.
The focus of concern is the Strait of Hormuz, a narrow shipping route through which about one-fifth of the world’s oil and gas supplies pass. Disruption to traffic through the strait has raised fears that large volumes of energy could be removed from global markets. Some shipments have already been affected. Liquefied natural gas exports from Qatar have been disrupted, tightening supply and pushing prices higher. Wholesale gas prices have climbed to their highest level in roughly three years.
Even countries that do not rely heavily on Middle Eastern gas feel the effect. Energy markets operate globally. When supply risks appear in one region, prices tend to rise everywhere.
Oil prices have also risen in response to the conflict. Higher crude prices are beginning to affect petrol and diesel costs for motorists.
Price cap forecast
The surge in wholesale prices is now expected to feed directly into UK household bills. Energy consultant Cornwall Insight forecasted that:
- The price cap will rise by around 10% in July
- This would increase the typical annual energy bill from £1,641 in the current quarter to £1,801
- £160 per year would be added to the average yearly energy bill
Wholesale energy costs remain the largest component of household bills. When those costs move sharply, the price cap usually follows. Ofgem will announce the official cap level on May 27th. Until then, the final figure could still change if market conditions shift.
Why the UK is vulnerable to price shocks
The latest forecast highlights a long-standing weakness in the UK energy system. The country remains highly exposed to movements in global gas markets. There are several reasons for this:
- Gas still plays a major role in electricity generation. When gas prices rise, the cost of producing electricity also rises. Therefore, shocks in international gas markets quickly feed into domestic energy prices.
- The UK has less gas storage capacity than many European countries. That leaves the system more sensitive to sudden supply disruptions or spikes in demand.
- The country relies heavily on global fossil fuel markets, where prices are shaped by geopolitics as much as domestic supply and demand.
There is debate over whether ramping up the UK’s energy production could boost its position. However, some experts contend that increasing domestic oil and gas production would not necessarily lower household bills because energy produced in the UK is still traded at global market prices.
Impact on consumers
For consumers, the latest forecasts will feel like a step backwards. Many customers expected energy costs to continue falling after the price cap dropped earlier in the year. Instead, the market may be entering another period of volatility. Global events can still move energy prices quickly, and the consequences are felt directly in household bills.
The July price cap will not be confirmed until May. The conflict could be resolved, and wholesale markets could still shift before that date. But the current outlook points to higher bills rather than relief.