Energy prices paid by most British households are set to rise 80 percent this fall, putting further pressure on consumers and stoking inflation.
On Friday, Ofgem, the government’s energy regulator, said the so-called cap on what a typical household would pay for electricity and natural gas over a year would rise to 3,549 pounds (about $4,200) from the current £1,971. Consumers and businesses in Britain and elsewhere across Europe are being hit with massive price increases for energy as the war in Ukraine stretches already tight markets for electricity and natural gas.
“This will be devastating for many families,” Jonathan Brearley, chief executive of the regulator, told the BBC. Looking into early next year, he said, “the difficult news I have to give today is that prices look like they are continuing to rise.”
The increase, which takes effect in October and covers about 24 million households, follows a 54 percent rise in April.
“The pressure on stretched households will only intensify, and the calls for support will get ever louder,” wrote Martin Young, a utility analyst at Investec, a financial services firm, in a recent note to clients. Mr. Young expects another jump, to £4,210, in January.
Consumer prices in Britain rose 10.1 percent last month from a year earlier, the fastest pace in 40 years, squeezing household budgets. The Bank of England has predicted that inflation would peak at 13 percent in October as the new energy prices turn up in household bills. Other estimates are higher; analysts at Citi have said the rate could reach as high as 18 percent next year.
The price hikes and how to deal with them have become a hot subject of political discourse in Britain and across Europe. While the British government has offered a package that includes £400 per household to help residents with soaring bills, a wide range of politicians, consumer advocates and energy executives now say that more forceful intervention is needed to cushion households from the surge in energy costs.
Recently, Britain’s opposition Labour Party said that it would freeze energy tariffs where they are now, paying part of the £29 billion cost by increasing the so-called windfall taxes that the Conservative government imposed earlier this year on oil and gas giants operating in the North Sea.
The main component in Ofgem’s calculations was a more than doubling of wholesale electricity and natural gas costs. These account for about 70 percent of the new price cap.
Coping with increases of such magnitude is beyond the scope of Ofgem, whose role is to protect consumers from profiteering by suppliers, Mr. Brearley said. “The truth is this is beyond the capacity of the industry and the regulator to address,” he added.
Britain’s governing Conservative Party is picking a new prime minister to replace Boris Johnson in early September, choosing between Liz Truss and Rishi Sunak. Mr. Brearley called on the winning candidate to intervene decisively in the energy markets.
“What I am clear about is the prime minister with his or her ministerial team will need to act urgently and decisively to address this,” he said. “The outlook for the winter without any action looks very difficult indeed.”