UK household energy bills are projected to increase by about 25% in January 2027, according to Bloomberg Economics. This surge is attributed to the ongoing conflict in Iran, which has driven up wholesale gas and electricity prices, adding significant inflationary pressures across the broader UK economy.
This expected 25% hike could mean a typical household's annual energy bill will rise by around £425. Bloomberg Economics forecasts the energy price cap, set by regulator Ofgem, to surge by approximately £427 to roughly £2,150 a year for the average household starting in January. This increase would bring bills close to the £2,500 cap introduced by the government in 2022 following Russia's invasion of Ukraine.
The rise in energy costs is expected to have a wider economic impact. Bloomberg Economics predicts that UK inflation could climb above 4% next year, which is double the Bank of England’s target. This could lead to the Bank of England raising interest rates further to control inflation, making borrowing more expensive for consumers, including mortgage holders. Money markets are already anticipating the Bank of England to hike rates as high as 4.75% by July 2027.
British gas prices have already reached 203.28p per therm, their highest level since late 2022, as turmoil in the Middle East continues to affect markets. The conflict involving Iran has also caused oil prices to surpass $100 a barrel for the first time since July, and the close link between gas and oil markets has contributed to the increase in UK gas prices. Households are already facing higher costs, with a 4% rise in the Ofgem price cap in October, bringing typical annual bills to £1,723, following a 13% hike in July.
