The average UK household will see their annual energy bill drop by £426 from July as Ofgem is lowering its energy price cap.
The cap will be lowered from the current £3,280 per year to £2,074 from 1 July for households in England, Wales and Scotland.
Ofgem said the £1,206 reduction to the cap reflects the recent fall in wholesale energy prices and will mark the first time consumers on default tariffs have seen their prices fall since the global gas crisis took hold more than 18 months ago.
The lower cap will replace the government’s Energy Price Guarantee (EPG), which currently limits the typical household energy bill to around £2,500, meaning annual bills will fall by £426 on average.
At its peak, the price cap reached £4,279 and “whilst today’s level is lower than last quarter, it is still above the levels it was before the energy crisis took hold, meaning many households could still struggle to pay bills”, the regulator added.
Ofgem chief executive Jonathan Brearley said more focus will be needed for government, the regulator and the industry to support the most vulnerable groups this winter.
He said: “After a difficult winter for consumers it is encouraging to see signs that the market is stabilising and prices are moving in the right direction. People should start seeing cheaper energy bills from the start of July, and that is a welcome step towards lower costs.
“However, we know people are still finding it hard, the cost-of-living crisis continues and these bills will still be troubling many people up and down the country. Where people are struggling, we urge them to contact their supplier who will be able to offer a range of support, such as payment plans or access to hardship funds.
“In the medium term, we’re unlikely to see prices return to the levels we saw before the energy crisis, and therefore we believe that it is imperative that government, Ofgem, consumer groups and the wider industry work together to support vulnerable groups. In particular, we will continue to work with government to look at all options.”
Energy Security Secretary Grant Shapps said the lower price cap was “positive” for households across the country and marks a “major milestone” in the government’s efforts to halve inflation.
He said: “We’ve spent billions to protect families when prices rose over the winter, covering nearly half a typical household’s energy bill – and we’re now seeing costs fall even further with wholesale energy prices down by over two thirds since their peak as we’ve neutralised Putin’s blackmail.
“I’m relentlessly focused on reducing our reliance on foreign fossil fuels and powering-up Britain from Britain to deliver cheaper, cleaner and more secure energy.”
But campaigners have warned that bills would remain unaffordable for millions of households, even with the lower price cap. Simon Francis, coordinator of the End Fuel Poverty Coalition, said that customers are still going to be paying “roughly the same” for gas and electricity as last winter, “and after months of inflation and the wider cost of living crisis, people are even less able to afford these high energy bills.”
Meanwhile Citizens Advice said more government support will be needed in the future. Chief executive Dame Clare Moriarty said: “The fall in the price cap provides some desperately needed respite for households but energy bills will still be nearly double what they were just 18 months ago. That’s unaffordable for millions of households.
“For many, life is getting worse, not better. Year on year we’re breaking records for the number of people struggling with energy debt. It’s clear more government support will be needed in the future for struggling households.”
Consultancy firm Cornwall Insight has warned households to expect their energy bills to remain stubbornly high through the coming winter, at almost double the rates paid in 2020, and remain above pre-pandemic levels for the rest of the decade.
The price cap has rocketed from £1,162 a year for a typical household in August 2021 to its current level of £3,280, having briefly reached £4,279, with the pandemic and Russia’s war in Ukraine both pushing up wholesale prices.