Britain's domestic energy price cap is forecast to rise by approximately 4% in October, reaching a three-year high. Analysts at Cornwall Insight predict the cap will increase to £1,729 annually for typical use, up from £1,663 in July, as higher wholesale costs outweigh the government's decision to remove the 5% VAT on electricity bills from October 1.
This increase is primarily driven by ongoing uncertainty surrounding the US-Iran conflict, which has pushed wholesale prices for the coming winter to their highest level in almost four years. Disruptions to shipping in the Middle East, along with increased demand for power across Europe due to heatwaves and extended Norwegian offshore production outages, have contributed to a surge in international gas prices.
The energy regulator Ofgem is expected to announce the official price cap level by August 26. The new Prime Minister, Andy Burnham, had announced the removal of the 5% VAT on electricity bills as a measure to ease cost-of-living pressures, though this tax cut does not apply to gas costs. A government spokesperson affirmed that tackling the cost of living remains a priority.
Cornwall Insight notes that under Ofgem’s new definition of a typical consumer, introduced in July 2026, the annual cap is expected to rise to £1,729, from the current £1,663. However, under the previous definition, the annual cap would be £1,941, compared to the previous £1,862. The amount a household pays ultimately depends on their individual usage. The firm also forecasts a further rise for January, though this is subject to wholesale market volatility.
The largest factor contributing to Ofgem's price cap, which is set quarterly, remains wholesale energy prices. Dr. Craig Lowrey, Principal Consultant at Cornwall Insight, highlighted that this hike, driven by international conflict, underscores Britain's reliance on volatile international gas markets and the need for greater energy independence to protect consumers from future price shocks.
