Energy bills are set to triple as British households face an “almighty hit” to living standards, economists have warned.
The average household could face a cost of £500 for energy in January 2023, with a prediction of an annual price cap of £3,850, far exceeding already gloomy predictions on rising bills made earlier this year.
The forecast, by utilities consultancy BFY Group, came as Russia took further steps to slash its gas supplies to Europe, strangling the market even further.
The country has drastically reduced gas supplies to several European states since waging war on Ukraine. The bitter conflict has upped pressure on global food, petrol and domestic energy costs.
“If you look back at the same time last year, your bill is likely to be three times what you would have been paying in January,” Gemma Berwick, a senior consultant at BFY told The Independent.
The projections have added to economists’ concerns about the depth and length of the cost of living crisis.
In the next two years, inflation will eat into living standards at a rate not seen since at least the 1950s, said Paul Dales, chief UK economist at Capital Economics.
“There’s an almighty hit for households spending power coming down the line,” he said.
Disposable income, a measure which works out the amount of money households have left after paying for essentials, will drop by 3 per cent this year, and 2 per cent next year, according to Mr Dales.
“This hasn’t fallen by more than 2 per cent in a calendar year since 1955,” he said.
The stark findings come as Citizens Advice, a charity, said it is facing record levels of requests for help from people unable to top up their prepayment meters.
“Our data paints a picture of the stark choices facing families everywhere as the cost-of-living crisis bites,” said Dame Clare Moriarty, chief executive of Citizens Advice.
“Most worrying is that issues we’d typically see in winter – like people unable to top up their prepayment meter – are peaking in the height of summer.”
BFY’s projections are “awful news for everyone” Ms Berwick said, but those on prepayment meters will be most exposed. This group, who tend to be on lower incomes, will have to find the cash right away, rather than smooth the impact of winter bills through year’s worth of direct debits.
“Prepayment customers will be looking to top up their meters with £500 in January,” she said.
Energy regulator Ofgem’s price cap will have to take these recent higher prices into account when it sets a new figure in August. Its so-called observation window for monitoring energy markets ran from February and will end on August 18, before the new cap is announced a few days later.
“This means most of the data has already been collected,” Ms Berwick said.
Cornwall Insight, another consultancy, forecast a price cap of £3,364 for January 2023, earlier this month, but Russia’s increasingly militant approach to gas exports has worsened the outlook, market experts said.
BFY now believes Ofgem will have to set the earlier October price cap change at £3,420, with another increase expected when the cap is reviewed in January to £3,850.
