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The energy price cap is expected to hit £1,999 a year in January 2027, the highest quarterly jump in costs since January 2023.
The prediction comes from leading consultancy Cornwall Insight, and follows a sharp hike in energy costs due to the US-Iran conflict. While they previously estimated that the cap would climb by around 9% in January, today’s 9% forecast suggests an even bleaker winter lies ahead for millions of people.
Dr Craig Lowrey, Principal Consultant at Cornwall Insight, said: “These prices are going to hit households hard. January is already a difficult month for many, with cold weather and bank balances still recovering from Christmas, and now they face the biggest price cap rise we’ve seen in four years. At the moment, we can’t yet see an end to the volatility, and with gas stocks as low as they are, the effects of the conflict could be with us for many more months.
“With the Budget just around the corner, there is the possibility of further household support beyond the VAT move announced in July. However, the Government is going to have to think carefully about the type and level of support that they make available.”
What’s the longer term outlook for energy prices?
Cornwall Insight predicts that next year’s April energy cap update could be even higher, as If gas reserves are significantly run down over winter, Europe will have to buy more gas during the summer to prepare for the next cold season, which could add to price pressures.
Caroline Abrahams, Charity Director at Age UK, said: “With energy prices set to rise yet again the Government needs to take decisive action to protect the older people in greatest need. We are calling on Ministers to raise the Warm Home Discount to £200 for this winter, as well as opening up an application route for people of all ages on low incomes to seek this support via their energy supplier.”
The price cap rose to £1,723 on 1 October. The cap limits what suppliers can charge customers for their energy usage, though it is intended to function as the average annual bill for a household using the “typical” amount of energy, rather than a hard limit on what suppliers can charge anyone.
This means that those in larger households or in properties which aren’t energy efficient could see an even higher annual bill. You can find out more about the price cap and how it works in our guide What is the energy price cap?
Help for those struggling with energy bills
The government is facing pressure to announce new measures in the 28 October Budget to curb the impact of rising energy bills.
It has already cut VAT on electricity bills from October, in a move designed to ease cost-of-living pressures for millions of households. The actual savings you’ll see from this change will depend on your individual circumstances, although it is expected to be in the region of £45 a year.
Charlotte Kennedy, Chartered Financial Planner at Rathbones, one of the UK’s leading wealth and asset management groups, said: “The saving will vary from household to household, depending on factors including energy use, tariffs, property type, energy efficiency and household size.”
Our articles The energy bills crisis: what can you do about soaring costs? and What can you do if you can’t pay your energy bills? contain advice and resources that may be useful to you if you are struggling to pay your energy bills, or are worried that you will be unable to do so in the coming months.
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