UK households will see their average annual energy bills rise by 4% to £1,723 starting in October, regulator Ofgem said on Tuesday, as volatile wholesale gas prices fueled by geopolitical tensions in the Middle East push costs higher.
The increase, which follows a 13% rise in July, adds about £60 per year to typical bills. Ofgem attributed the rise to elevated global gas prices stemming from the ongoing conflict in the Middle East, though prices remain 52% below the peak of the 2022 energy crisis when the government capped bills at £2,500.
The regulator noted that 35% of households—around 11 million—on fixed tariffs will be unaffected by the change. The UK government’s decision to remove VAT from domestic electricity bills has tempered the broader impact, with the reduction automatically applied by suppliers. Without this intervention, bills would have been approximately £45 higher, Ofgem said.
The rise is primarily driven by an 8% increase in gas costs, while electricity bills are broadly stable due to the VAT removal. Households without gas connections will see a much smaller increase of less than 1%. Ofgem also highlighted that fixed tariffs averaging £100 below the new price cap remain available, offering potential savings for consumers who switch providers.
Energy Secretary Miatta Fahnbulleh acknowledged public concerns, stating that the government has taken steps to ease the burden, including removing VAT on electricity and providing £150 in direct support earlier this year. However, calls for additional measures persist, with unions and campaigners urging further assistance for vulnerable households.
Analysts at RSM UK cautioned that while the price cap increase will have limited impact on headline inflation, risks to utility bills remain skewed to the upside. European natural gas storage levels are at a decade low, raising the possibility of further price surges as winter approaches. Such a scenario could push bills higher in January and keep inflation elevated into 2027.
The announcement comes as Brent crude oil prices hover around $87 per barrel, up from $72.80 before the Iran war but down 1.7% on the day. Asian equity markets rose on Tuesday, with Japan’s Nikkei and Hong Kong’s Hang Seng gaining about 0.7%, while South Korea’s Kospi advanced 1.3%.
