Energy Bills to Drop by £122 from July Under New Cap

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From July, a typical household in England, Wales, and Scotland will see a £122 reduction in their annual energy bills, thanks to the latest price cap set by the regulator Ofgem.

This adjustment means that households using an average amount of gas and electricity will now pay approximately £1,568 per year, marking the lowest energy costs in two years.

The price cap, determined quarterly by Ofgem, limits the maximum price per unit of gas and electricity that suppliers can charge, rather than capping the total bill amount. Consequently, households consuming more energy will still incur higher costs.

This change will affect the energy bills of 28 million households. However, it will not impact Northern Ireland, where energy regulation differs but prices are also experiencing a decline.

Energy prices have reached their lowest since the onset of the Ukraine conflict in February 2022. Despite this reduction, current bills remain significantly higher than pre-pandemic levels, with an average increase of £400 compared to three years ago. Additionally, consumers have accumulated an estimated £3 billion in debt to suppliers during the period of high prices.

“The fall in the energy price cap reduces bills slightly,” said Dame Clare Moriarty, Chief Executive of Citizens Advice. “But our data tells us millions have fallen into the red or are unable to cover their essential costs every month.”

Analysts from Cornwall Insight warn that recent increases in wholesale prices could lead to higher energy bills as winter approaches.

Impact on Different Payment Methods

Households using prepayment meters, who typically top up more during colder months, will experience a less immediate impact from the summer price drop. Conversely, the majority of households paying by direct debit will see their payments adjusted to reflect the new cap, with suppliers providing updated payment information shortly.

Customers paying by direct debit can expect their payments to be averaged out over the year, based on past and anticipated future usage. They are encouraged to discuss any concerns or discrepancies with their energy providers.

Broader Economic Implications

The reduction in energy bills has already contributed to lowering inflation to its lowest level in nearly three years. Further decreases could continue to influence the inflation rate and potentially prompt the Bank of England to consider reducing interest rates.

Ofgem is also soliciting feedback on the methodology used to calculate the price cap, including potential revisions to standing charges, which cover the fixed costs of maintaining energy supply connections and have seen significant increases in some regions.

As the new cap takes effect, households can look forward to some financial relief amid the ongoing economic challenges.

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