UK households face another increase in energy costs this winter despite a sharp fall in oil prices as hopes grow that the Strait of Hormuz could reopen to shipping.
The average household energy bill will rise by almost 4% to £1,723 a year from October under Ofgem’s latest price cap.
However, wholesale oil markets are currently moving in the opposite direction. Brent crude fell around 3% to $85.92 a barrel, marking its third consecutive daily decline.
Prices have retreated as investors assess the prospect of increased shipping through the Strait of Hormuz after traffic through the crucial energy route dwindled to just two vessels on Monday and five on Tuesday. Iran has said it has resumed discussions with Oman over management of shipping through the waterway.
Any relief for British households may nevertheless be some way off.
Cornwall Insight forecasts the typical annual energy bill could rise by a further 9% to £1,872 in January, an increase of £149 from October’s cap under Ofgem’s revised average-consumption methodology.
Wholesale energy costs account for more than 40% of the price cap, and recent volatility caused by the US-Iran conflict has combined with European heatwaves, Norwegian supply disruption and strong Asian demand to leave European gas inventories relatively low ahead of winter.
That means even a rapid easing of Middle East tensions may not immediately translate into falling household bills.
A further January increase would also intensify pressure on the government to provide additional assistance to vulnerable households. Potential measures include targeted payments or longer-term reforms such as a social tariff, social discount or subsidised essential-energy allowance, with the autumn Budget providing a possible opportunity for an announcement.
