Cost of living: Energy bills prediction will cause widespread confusion, experts warn

Energy bills have been the driving force behind high inflation for months. (PA)
Energy bills have been the driving force behind high inflation for months. (PA) (Jacob King, PA Images)

Predictions over falling gas prices are good for consumers but could lead to confusion for the public over what it means for their energy bills, experts have warned.

Energy market observer Cornwall Insight has predicted Ofgem will lower the energy price cap to £2,063 a year in June.

This will be the first time the energy price cap set by Ofgem has governed the cost of energy bills since October, when the government intervened with the energy price guarantee.

The government's energy price guarantee is currently set at £2,500 per year for the average household.

Ofgem's energy price cap still exists and regulates costs behind the scenes but as it stands at £3,280 for typical household use, no-one in the UK has been paying that rate.

Cornwall Insight now believes the next time Ofgem adjusts rates in June it will be below the energy price guarantee.

If their prediction is correct then a standard household could see their yearly energy bills fall by £500.

But Rocio Concha, Which? director of policy and advocacy warned this would still be unaffordable for many.

Read more: Cost of living: Food prices 'will be the new energy crisis'

Despite the predicted fall in gas prices energy bills will still be unaffordable to many. (PA)
Despite the predicted fall in gas prices energy bills will still be unaffordable to many. (PA) (Hill Street Studios via Getty Images)

Concha also warned that "many will understandably be confused about what exactly this means for them and their energy bills."

One of the biggest confusions will be around if customers should return to fix rate contracts.

Fixed deals mostly disappeared from the market when energy prices began soaring last autumn, with many smaller retailers going out of business.

But now prices are falling below the government protection thresholds they are starting to make a return to the market.

Should you switch to a fixed-rate deal?

It is hard to say, but with energy prices on a downward trend locking your house into a contract for two years may mean you miss out on cheaper prices further down the road.

In March, Ofgem CEO Jonathan Brearley cautioned people against leaping onto fixed-rate deals without considering the consequences.

Prices are expected to fall during the summer. (PA)
Prices are expected to fall during the summer. (PA) (Richard Newstead via Getty Images)

Read more: How overpriced is the housing in your area? Map shows worst hotspots

He said: "I would encourage all customers to examine any offer carefully, and ensure they consider the potential for the price cap to fall later in the year."

OVO Energy and SSE have been offering fixed deals since March currently lower than the guarantee at around £2,300 per year for typical use, lower than the government cap.

But if the price cap falls to around £2,000 people locked into the contract could be stuck paying more than most for the remainder of the contract.

Cornwall Insight said: "An increase in fixed-rate deals entering the market could help consumers get greater control over their energy bills, confident their price per MWh will not increase over the term.

"While this may be seen as a good development, there is always a risk in fixing energy tariffs as bills may reduce further leaving customers locked in at higher-than-market rates for a fixed duration.

"Additionally, we must recognise these prices are still £1,000 more than households were paying prior to the pandemic."

However, despite the downward trend it does not mean prices will keep on falling, with the war in Ukraine and worldwide inflation leading to volatility in the market predicting the future is impossible.