Energy price cap set for steepest climb in four years as January forecast bites

Household energy bills are poised for their sharpest rise in four years, with a typical annual bill forecast to increase by £276 in January, according to figures shared with the BBC by energy consultancy Cornwall Insight. The predicted 16% jump would add roughly £23 a month to the average household's energy costs, reversing the easing households have enjoyed over the past year.

The timing could not be worse. January brings colder weather, post-Christmas financial strain and, for many families, the last of their annual budget. As the consultancy's forecast emerged, it placed fresh pressure on the government to come up with additional support for households struggling to pay, just as a separate rise was about to take effect under Ofgem's price cap.

The forecast came a day before prices were due to increase under the regulator's October cap. It also sharpened calls to extend the government's VAT cut on electricity, which is due to expire on Thursday. Simone Rossi, chief executive of supplier EDF, warned that the UK is "walking into a second energy crisis", arguing that the relief scheme should be prolonged rather than allowed to lapse.

About 20 million households across England, Scotland and Wales are currently on variable tariffs, which move in line with the price cap set by Ofgem. That cap limits the maximum price charged for each unit of gas and electricity. From Thursday, those households will see prices climb by about 4% — the equivalent of roughly £60 a year, or £5 a month. If that level were to persist for a full year, a typical household using both fuels and paying by direct debit would see its bill rise to £1,723.

That October increase would have been steeper had the government's VAT reduction on domestic energy not remained in place. The policy currently shaves the equivalent of about £45 a year off a typical bill, and campaigners and industry figures alike have warned that withdrawing it would compound the squeeze at precisely the point bills are rising again.

The January forecast is far more dramatic by comparison. Cornwall Insight's latest modelling suggests the typical annual bill could climb to £1,999 — meaning an increase of 16% on the current level, and the largest single percentage rise since prices began falling back from their peak. The cap has oscillated within a comparatively narrow band recently, hovering in the region of £1,543 to £1,655, well below the highs seen in 2023, when the annual figure briefly touched £3,582 before dropping as low as £1,414.

Craig Lowrey, principal consultant at Cornwall Insight, said the rise would land at the worst possible moment. "These prices are going to hit households hard," he said, adding: "January is already a difficult month for many, with cold weather and bank balances still recovering from Christmas."

Behind the forecast is disruption to gas supplies linked to the conflict in the Middle East, which has left storage levels across Europe unusually low. Rebuilding depleted stocks could keep wholesale prices elevated — and therefore bills high — "well beyond the winter", the forecaster said. The consultancy has built a strong reputation for accuracy over recent years and is widely respected across both industry and political circles, with several suppliers producing similar projections.

Nevertheless, the January figure remains a projection rather than a decision. Ofgem will not publish the official cap until late November, and the observation window used to set it is already half complete. An easing of Middle East tensions could reduce the pain for consumers, but with little sign of a truce or of falling international energy prices, Lowrey said a rise was "all but certain" for those on variable deals.

For households on fixed tariffs, the picture is more stable, but the outlook is no less unwelcome. Aaron Richards, from Maidenhead, said the cumulative effect of rising costs was taking a toll. "I try to eat less takeaways, work more overtime, and try to budget a bit better, but at the same time, we shouldn't have to," he said. Driving a diesel car, he is also paying record high prices simply to get to and from work.

"I just feel like everything's going up. How far is it going to go? Someone's got to step in," Richards said. He added: "I know people who can't afford to heat their house and they're struggling at the moment. Housing and eating are two of life's essentials that everyone should have. It shouldn't be a challenge to have any of those things."

The strain is showing up in the data on unpaid accounts. Years of consistently high domestic energy prices have left customers collectively owing more than £5bn in unpaid bills and charges to suppliers, according to recent Ofgem figures. The regulator has a proposed debt relief scheme on the table, but campaigners are urging it to move forward — and pressing ministers to provide the funding required to implement it.

Adam Scorer, chief executive of the fuel poverty charity National Energy Action, said the situation was "unsustainable, not just for households but also for the market as a whole." He said: "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."