UK Energy Bills Rise in Sign of Continued Inflation Risk

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(Bloomberg) — U.K. energy prices are set to rise in January, signaling that the effects of inflation will continue.

The cap, measured every three months by the regulator Ofgem, will increase by 1.2% to £1,738 ($2,182.2) from January 1, according to figures published on Friday.

The increase is the first time since the energy crisis that bills have risen for two consecutive periods. Wholesale prices have risen about 50% this year as Russia’s war in Ukraine escalates, fueling fears about the security of global supplies.

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“As long as Britain remains exposed to the roller coaster of the global fossil fuel market, we will be vulnerable to rising energy prices over which we have no control,” Secretary of State for Energy Security and Net Zero Ed Miliband said.

Rising costs will make it even more difficult for the government to fulfill its election promises to lower bills as well as providing a headache for the Bank of England as it tries to keep inflation in check.

The increase in the bill comes in the coldest part of the season. Campaign groups have been pushing for additional support from the government for vulnerable customers.

“With temperatures now dropping and less support available, many borrowers are trying to stay warm. We now know that will not be the case in January and beyond,” said National Energy Action Chief Executive Adam Scorer. “Targeted government support is essential to save millions of people from the misery and danger of a cold home.’

The government has implemented an unpopular decision to cut winter fuel allowances for some pensioners.

The increase in the energy price cap in October drove inflation to 2.3% from 1.7%, the National Statistics Office said this week. The contribution of energy costs to consumers rose to the highest level since 2022 and the Bank of England expects the level to reach almost 3% in the third quarter of next year with energy bills being a part.

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Ofgem’s price cap, which shows the annual bill for a typical household, generally reflects wholesale electricity and gas prices. The latest increase is mostly due to global dynamics in the gas market related to geopolitical risks in the war in Ukraine.

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“Our dependence on volatile international markets – which are affected by factors such as events in Russia and the Middle East – means that energy costs will continue to fluctuate,” Tim Jarvis, director general of markets at Ofgem, said in a statement.

Bills are expected to fall by 1.4% from April according to analysis from energy consultants Cornwall Insight Ltd. However, he said these levels are the “new normal” when it comes to energy markets, with prices remaining above historical averages.

(Update with comments from the energy minister in the fourth paragraph.)

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