Energy prices could rise by 16% in January, pushing the typical annual household bill to £1,999, according to a new forecast from consultancy Cornwall Insight.
The projected £276 increase would affect millions of households during the coldest part of the year and would represent the largest rise in household energy bills for four years. The forecast has also increased pressure on the government to help households facing difficulties paying their bills.
Energy Prices Set for Major January Rise
The Cornwall Insight forecast comes shortly before Ofgem’s October price cap takes effect. From Thursday, around 20 million households in England, Scotland and Wales on variable energy tariffs will see their prices increase by 4%.
That October rise is equivalent to around £60 a year, or £5 a month, taking the typical annual bill to £1,723 for a household using both gas and electricity and paying by direct debit, if the level remained unchanged for a full year.
Energy prices would have increased further without the government’s VAT reduction, which is equivalent to around £45 a year for a typical household. However, the latest forecast suggests that the reduction will not prevent a much larger increase from arriving in January.
Cornwall Insight expects the typical annual bill to reach £1,999 under its latest forecast. Ofgem will not confirm the actual January price cap until late November, meaning the figure remains a prediction rather than a final price.
Energy Prices Hit Households During Winter
Craig Lowrey, principal consultant at Cornwall Insight, said the expected increase could place significant pressure on households because January is already a difficult period for many families.
“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,” he said.
The energy price forecast is linked to disruption to gas supplies caused by the conflict in the Middle East and lower gas storage levels across Europe. Cornwall Insight said rebuilding those stocks could keep energy bills high beyond the winter.
The consultancy has a strong track record for energy forecasts, and similar expectations have also been reported by energy suppliers. Lowrey said a January increase was “all but certain”, although an easing of tensions in the Middle East could reduce the pressure on prices.
Energy Prices Add to Existing Debt Pressure
The expected rise comes as many households are already struggling with unpaid energy bills. Recent Ofgem data showed that customers collectively owe more than £5bn in unpaid bills and charges to suppliers.
Ofgem has proposed a debt relief scheme, while campaigners have urged the regulator and government to act on the growing level of energy debt. Adam Scorer, chief executive of fuel poverty charity National Energy Action, said the situation was becoming unsustainable for households and the wider energy market.
“The Budget must deliver additional targeted support for households most at risk this winter, alongside action to tackle energy debt and improve the least energy-efficient homes,” Scorer said.
For households already dealing with rising living costs, higher energy prices could create additional financial pressure. Aaron Richards from Maidenhead said he had been trying to reduce takeaway spending, work more overtime and manage his budget more carefully as his costs increased.
EDF Warns of Second Energy Crisis
EDF chief executive Simone Rossi has also warned that the UK could face another major energy crisis. Speaking to the BBC’s Big Boss Interview podcast, Rossi said: “We are actually walking into a second significant energy crisis after the one we experienced just four years ago.”
Rossi called for the government to extend the reduction in VAT on electricity bills from 5% to 0% beyond April, when the measure is due to expire. He also urged ministers to approve the Jackdaw gas field off the coast of Aberdeen and the Rosebank oil field off Shetland.
The government has said it will consider measures that could provide households with more breathing space over the cost of living. Meanwhile, the final January price cap will depend on market conditions during the remaining price-setting period before Ofgem announces the figure in late November.