Energy price cap will fall in January, forecasts predict – but expect another rise in April thanks to standing charges

The energy price cap will fall in the new year but households should brace for another rise in April, according to expert forecaster Cornwall Insight.

A final forecast for January predicts the price cap will fall to £1,733 a year for a typical dual fuel household.

It would mean a decrease of £22 – or 1 per cent – from the current price cap, which is set at £1,755 a year.

Electricity prices will fall from 25.35p/kWH to 26.15p/kWh while the standing charge will increase from 51p to 53p. 

Gas prices will also reduce from 6.29p to 5.93p, while standing charges will fall 1p to 33p.

The forecast includes the cost of a new levy – the Nuclear Regulation Asset Base (RAB) – to fund a new generation of power stations, which is expected to add around £10 a year to bills.

Lower bills: The price cap is forecast to fall in January before another uptick in April 

The forecast figure is only a prediction and Ofgem’s final price cap could be lower or higher. 

Cornwall Insight’s forecast includes 5 per cent VAT, but the Chancellor is reportedly mulling scrapping this, which could cut bills by around £80 a year.

Lower wholesale prices are helping to offset new levies, says Cornwall Insight, but it leaves households in a precarious position.

If the wholesale market picks up again, and once further changes and additions to levies start to be added to bills, the price cap will be higher in April.

The forecaster predicts prices will rise by around £75, which will come mostly from higher standing charges.

Cornwall Insight said: ‘This is likely to be an enduring trend with wholesale energy prices, once the dominant driver of bills, forecast to drop to less than 40 per cent of the cap and remain below that threshold for the rest of the decade.’

This is Money analysis shows standing charges have tripled since the introduction of the price cap, from roughly 28p for both gas and electricity to nearly 90p since January 2019.

Dr Craig Lowrey, principal consultant at Cornwall Insight said: ‘January’s price cap dip might look like good news, but it’s only part of the picture. 

‘Bills are still well above pre-crisis levels and are set to climb again in April, and this time, it’s not higher wholesale prices driving the rise.

‘The real pressure is coming from rising non-energy costs, with levies and policy deciwsions associated with that investment in renewables driving up bills.

‘While adjustments to subsidies or VAT may make a dent in bills, the government doesn’t have full control over many of the underlying non-wholesale costs

Energy suppliers also publish their own price cap forecasts, with three predicting prices to go in the same direction.

Octopus Energy expects a similar fall in prices in January, to £1,736, before a smaller price rise in April to £1,758.

Others are more pessimistic. British Gas expects just a £5 reduction in January, before a £95 jump in April to £1,855. 

EDF anticipates a £2 increase in prices in January, followed by a further increase to £1,842 in April when levy changes kick in.

A Department for Energy Security and Net Zero spokesperson said: ‘We know energy bills are still too high, which is why the government is taking urgent action to support families this winter, including expanding the £150 Warm Home Discount to 2.7 million more households.

‘The only way to bring down energy bills for good is with our clean energy superpower mission, which will get the UK off the rollercoaster of fossil fuel prices and onto clean, homegrown power that we control.’

The best fixed deals

With so much uncertainty about where energy prices might be in the new year and beyond, it’s a good time to fix your energy bill.

Outfox Energy’s 12-month fixed deal offers an average annual bill of £1,570, which gives you savings of £185 against the current price cap. If the price cap falls to the predicted £1,733, households will still save £163.

Ecotricity and Eon Next also have attractive fixed deals offering savings against the predicted price cap.

You can see the full list of the best fixed energy deals this week below.