Energy bills are set to rise by 10 per cent as Ofgem confirms a new price cap – with the average household paying £149 more a year

Energy bills are set to rise by 10 per cent in October, regulator Ofgem has confirmed. That’s £149 more a year.

The average household currently pays an energy bill of £1,568 a year, with prices limited by Ofgem’s price cap.

But from October 1, this amount will rise to £1,717, Ofgem said on Friday.

Rising energy bills are a blow to hundreds of thousands of pensioners, who will no longer receive a winter allowance of up to £300 a year under the sweeping cuts made by Chancellor of the Exchequer Rachel Reeves.

Energy bills are rising due to rising wholesale energy costs: the gas and electricity that energy companies purchase and then sell to consumers.

The current price cap determines the energy bills of more than 80 percent of households in the UK, although the exact amount varies depending on gas and electricity consumption.

The maximum amount for the main prize applies to households with an energy contract with a variable rate who pay by direct debit.

Both the unit rate and the daily rate will increase as of October 1.

The average electricity rate will rise from 22.36p per kilowatt hour (kWh) to 24.5p per kWh, while the gas rate will rise from 5.48p to 6.24p.

Fixed costs are paid regardless of gas and electricity consumption.

For electricity the normal rate increases from 60.12 p/day to 60.99 p/day. For gas the rate increases from 31.41 p/day to 31.66 p/day.

The average price ceiling for October will apply for three months, until it is reset in January 2025.

Can I stay ahead of the price increase?

The only way to pay less on your energy bill is to use less gas and electricity or switch to a cheaper deal.

Fortunately, there are some flat rates that reduce the October price cap by up to £125 per year, but these are rare.

With a fixed rate energy contract, as the name suggests, restrictions apply to the unit rates and fixed costs, regardless of what happens to Ofgem’s price cap.

If the fixed rate is cheaper than the rate that is likely to come into effect in October (which in many cases is not the case), households will save on their energy bills.

Richard Neudegg, director of regulation at Uswitch, said: ‘The news of a 10 per cent rise in energy prices compared to October is a stark reminder of how quickly the energy market can change course.

The good news is that households will not have to deal with the uncertainty of rising bills, as there are now fixed offers available that are cheaper than the new price cap.

‘The cheapest fixed tariff for 12 months, for an average household, is currently £1,592. This represents an annual saving of £125 compared to the October price cap and offers protection against a potential further price rise in January.’

Why is Ofgem’s price cap so important?

The price cap was introduced in January 2019 to prevent energy companies from overcharging their customers for variable rates.

At the time, most households had an energy contract with a fixed rate and only switched to a variable rate if they did not renew at the end of the term.

But when energy bills started to rise in late 2021, gas and electricity companies responded by removing all new fixed rate contracts from the market.

They did this to prevent the large-scale collapse that hit many energy companies, who were suddenly forced to sell energy at a price much lower than the purchase price.

With cheap fixed interest rates all but gone, almost all homes ended up on variable rates regulated by Ofgem’s price cap.

What will happen to the energy bill in 2025?

Ofgem never makes predictions about the future of its price cap.

Unfortunately, it seems like the only way to go is up.

Analysts at Cornwall Insight said energy bills will “rise more modestly” when the price cap changes again in January 2025.

Cornwall Insight has correctly predicted the direction of all price cap changes since the volatile energy prices in late 2021.