Despite concerns about heightened tensions in the Red Sea causing an energy bill surge, analysts are predicting a significant relief for UK households as energy bills could decrease by over
£300 annually from April. Cornwall Insight forecasts a 16% drop in average bills compared to the previous quarter, potentially reaching their lowest level since Russia's invasion of Ukraine.
The prediction suggests that Ofgem's price cap, representing the average annual bill for a typical household in Great Britain, will decrease from the current £1,928 to £1,620 in April – £40 lower than the December estimate.
Moreover, analysts expect prices to remain lower than the existing cap throughout 2024, dropping to £1,497 per year in July before a slight increase to £1,541 in October. Despite concerns in the Red Sea, the prospect of lower energy bills remains intact, as European gas stocks remain higher than anticipated for this time of year, reflecting a relatively mild winter.
Factors such as "fairly healthy supply conditions" have contributed to falling wholesale prices since November. However, despite the recent decline in wholesale prices, the UK's energy prices remain susceptible to global events, and any potential disruptions to supplies could impact market confidence. Analysts emphasize the need to closely monitor market fluctuations over the coming months.
Craig Lowrey, a principal consultant at Cornwall Insight, reassures UK households, stating, "Concerns that events in the Red Sea would lead to a spike in energy bills have so far proved premature, and households can breathe a sigh of relief that prices are still forecast to fall. Healthy energy stocks and a positive supply outlook are keeping the wholesale market stable."
While recent trends suggest potential stabilization, a complete return to pre-crisis energy bills is not anticipated. Lowrey notes, "Shifts in where and how Europe sources its gas and power, alongside continued market jitters over geopolitical events, mean we are likely still facing costs hundreds of pounds above historical averages for a while, potentially the new normal for household energy budgets."
Lowrey concludes with a forward-looking perspective, emphasizing the importance of breaking free from the volatility of imported energy prices for achieving long-term reductions in the UK's energy costs. He advocates a sustained transition to homegrown renewable energy sources to reduce dependence on the volatile international energy market.