UK Household Energy Bills Forecast to Approach £2,000 Annually
Household energy bills in Great Britain could increase by more than £330 annually, reaching almost £2,000 from this summer, as the Iran war has pushed the UK's gas market past three-year highs. According to analysis by the energy consultancy Cornwall Insight, a typical combined household gas and electricity bill is now forecast to reach £1,972 a year from July under the UK government's quarterly price cap.
Sharp Rise in Forecasts Amid Middle East Tensions
This fresh forecast represents a significant jump from an estimate made just two weeks ago, when Cornwall Insight predicted the price cap could climb to £1,800 annually from July. That earlier prediction came after only five days of war in the Middle East. The current cap, set by Great Britain's industry regulator Ofgem at £1,641 for April to June, was £117 below the previous cap, offering a brief reprieve from rising bills for millions of households. However, prices are expected to rise sharply from the summer.
The latest forecast for a 20% increase in household energy costs was fuelled by a rise in European gas prices this week. This followed a significant escalation in the Middle East conflict, during which some of the region's most important infrastructure was targeted for the first time since the conflict began three weeks ago.
Gas Market Volatility and Infrastructure Damage
Gas prices in Europe rose 30% on Thursday after Qatar confirmed that missiles had caused extensive damage at the world's biggest processing facility for seaborne liquefied natural gas. Repairing this damage could take up to five years. Additionally, tankers of oil and gas from the Gulf remain unable to enter the global market via the Strait of Hormuz, which is effectively under the control of Iran's Islamic Revolutionary Guard Corps.
While Europe's gas markets eased slightly on Friday, prices remained twice as high as they were at the start of the war. The market price for UK gas delivered next month also eased, down 2% to 153p a therm on Friday from highs of 180p on Thursday, but it still remains almost double the level before the Iran war began.
Broader Impact on Consumer Costs
British motorists are also facing higher energy costs at the pump. Petrol prices have risen by almost 8% in the last three weeks to 143.35p a litre as global oil prices climbed to three-and-a-half-year highs. Diesel prices are 15% higher at 163.73p a litre. The international oil benchmark, Brent crude, traded at about $107 a barrel on Friday after falling from highs of $119 the day before. The global oil price remains almost 50% higher than before the conflict began.
Households are additionally contending with higher UK mortgage rates, even though the Bank of England left base rates on hold at 3.75% on Thursday. According to data provider Moneyfacts, the average two-year fixed mortgage rate has risen from 4.83% at the start of March to 5.35% on Friday. This increase will have added about an extra £900 annually to the cost of borrowing £250,000 over 25 years.
Moneyfacts calculated that if the Bank's base rate rises to 4% or 4.25%, as market pricing predicts, the average interest on new mortgages could stabilise at about 5.50% to 5.75%. That could add an extra £1,000 to £1,500 annually to the cost of borrowing £250,000 over 25 years, compared with rates at the beginning of March.
Market Reactions and Energy-Saving Measures
Adam French, the head of consumer finance at Moneyfacts, commented: "Swap rates, which underpin mortgage pricing, have risen sharply following the decision to hold the base rate at 3.75%, with markets interpreting commentary from the Bank of England as leaving the door open to rate rises amid 'Trumpflation' fears. With two- and five-year swaps now sitting at their highest level in more than a year, lenders are once again facing higher funding costs, and this will feed through into mortgage pricing."
Meanwhile, the risk of a steep increase in household energy costs has prompted the world's energy watchdog to urge global governments to consider Covid-style emergency measures to help reduce energy use. The International Energy Agency (IEA) noted that several governments are already considering policies to conserve energy. These include asking people to work from home where possible to reduce commuting and incentivising the use of public transport or sharing vehicles when travel is unavoidable.
The Paris-based agency has also suggested that governments could lower highway speed limits by at least 10km/h (6.2mph) to reduce fuel use for passenger vehicles and freight. The IEA's energy-saving measures focus primarily on road transport, which accounts for about 45% of the world's oil demand. However, the agency has also set out plans to conserve liquefied petroleum gas in transport and heavy industry in developing countries where LPG is heavily used by households.
