When will energy bills start to come down in the UK?

File photo dated 03/02/22 of an online energy bill. Consumer confidence has fallen again to a near-historic low amid inflation woes and growing concern about another jump in energy bills. GfK's long-running Consumer Confidence Index dropped three points in January to minus 45 after a short-lived and weak rally in the last quarter. Issue date: Friday January 20, 2023.
The energy price guarantee is set to become less generous in April, with the average household's annual bill hitting £3,000. (Getty Images)

With energy bills and inflation remaining close to record levels, the cost of living crisis is continuing to squeeze household budgets across the UK.

Inflation in the 12 months to December hit 10.5%, and the price of food is rising at the fastest rate ever recorded.

The government has provided people with various forms of financial support, including capping the cost of energy so the average household's bill is £2,500 a year, and offering a £400 energy bill rebate to every household.

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With the government energy support due to be scaled back from April, and families still facing the biggest drop in living standards since records began, many households are still wondering – when will energy bills actually start coming down?

Read more: Food prices unfairly increased, says Tesco boss

Why are energy bills so high at the moment?

The global cost of gas and oil began to rise at the end of 2021 due to a spike in demand as the world exited lockdown, before soaring further following Vladimir Putin's invasion of Ukraine and the subsequent disruption to gas supplies.

As a result of rising costs, companies had to pass on the cost of rising energy costs to customers.

Rising prices for energy suppliers drove Ofgem to hike its energy bill price cap - which controls the maximum amount energy companies are able to charge consumers per unit of energy used.

Dozens of firms also went bust in 2022 after failing to cope with the volatile market. The price of dealing with these failures was passed on to consumers.

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Amid dire predictions that the price cap could rise above £5,000, the government launched its energy price guarantee scheme, which capped the amount consumers pay for a unit of energy at the point where the average household pays £2,500 a year.

The government pays the difference to suppliers, meaning the full cost of energy price rises are not being passed to consumers.

When could energy bills start to reduce?

On Monday, the head of UK's energy watchdog said the energy price cap might drop below the £3,000 mark in April due to falls in the wholesale cost of gas and electricity.

The wholesale cost of energy has declined in recent weeks following a milder than expected winter across Europe and a broader decrease in demand.

Read more: Energy regulator Ofgem to review pre-payment meter push

European countries have also built up their capacity for gas storage and have moved away from its dependence on Russian gas and oil by importing fossil fuels from other countries.

Speaking at an Institute for Government (IFG) event, Ofgem chief executive Jonathan Brearley said predictions were still very uncertain, but provided a glimmer of hope for households.

“On our current projections, although gas prices do remain volatile, the price cap level may fall below the energy price guarantee level in July, and possibly do so as early as April,” he said.

“This will save billions of pounds of the expected public spending on that measure.

“Although highly uncertain, it’s possible that prices may fall well below this throughout the summer, which would be welcome news for all customers, both households and business.”

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However, last week, analysts at Cornwall Insight last week forecast the price cap would still top £3,200 in April.

It said it then expects energy bills to decline to around £2,200 in the second half of 2023.

The predictions comes as calls grow for the introduction of a social tariff to protect vulnerable households and those on low incomes from the fluctuating cost of energy.

Read more: Demand Flexibility Service: Are you eligible for National Grid payout?

A social tariff would fix energy bills at a certain level for those on low incomes, protecting them from volatile energy markets - a practice already used by water companies.

The cost would be paid for via taxation or other customers - and is already used by water providers to protect those struggling with payments.

In November, chancellor Jeremy Hunt said: "From April '24, we want to work towards a social tariff or social discount approach – whereby we reach all people equally on low incomes."

Watch: Labour pledge to 'extend' windfall tax to protect families from soaring energy bills