Cornwall Insight, a well-regarded industry analyst, predicts a 16% reduction in average bills from the previous quarter, potentially reaching the lowest levels since the onset of the Ukraine conflict.
The industry’s price cap, indicative of the average annual bill for a typical household, is expected to decrease from the current £1,928, set earlier this month, to £1,620 in April – a reduction of £308 and £40 less than previously forecasted in December.
Concerns about escalating tensions in the Red Sea, where Houthi rebels have disrupted global shipping, initially led analysts to fear an increase in wholesale oil prices and subsequent impact on household energy costs.
Contrary to these concerns, oil prices have remained relatively stable, and European gas reserves have been higher than anticipated during a mild winter, resulting in a drop in prices since November.
Cornwall Insight anticipates that energy prices will continue to be comparatively low through 2024. They predict a further decline to £1,497 for a typical annual bill from July, followed by a slight increase to £1,541 starting in October.
This forecast is a welcome development for Britons who have been dealing with increased expenses across various sectors, from food to utilities, amidst persistently high inflation rates.
Energy bills saw a steep rise in 2021, which escalated further due to the Ukraine conflict in 2022, driving up wholesale gas prices. This surge prompted government intervention to subsidize bills, capping costs to a typical household at £2,500.
Cornwall Insight noted that the supply of liquified natural gas to Europe had not been as adversely affected by the Red Sea disruptions as initially feared. Moreover, the UK has been well-supplied with gas from the US, which has become a more significant supplier since the Ukraine war. Contributing factors also include lower gas prices in Asia, mild weather, and robust gas availability.
Craig Lowrey, a principal consultant at Cornwall Insight, remarked that concerns about Red Sea events driving up energy prices have not materialized, allowing households to expect a reduction in prices.
On Monday, the next-month wholesale gas price dropped by 4% to 65p a therm.
However, Lowrey cautioned that a complete return to pre-crisis energy bill levels remains unlikely due to ongoing market impacts from shifting away from Russian energy sources and persistent geopolitical tensions.
Richard Neudegg, director of regulation at Uswitch, welcomed the potential further reduction of the price cap in April. However, he pointed out that this offers little solace to households currently struggling with high energy costs during the winter. Neudegg urged Ofgem, the energy regulator, to prompt suppliers to reintroduce more competitive and affordable fixed-price deals.