Sky-high fuel prices now the ‘new normal’

HIGH energy prices are the “new normal” even though regulator Ofgem is set to cut its price cap by £251 this week to just under £1,824, warns consultant Cornwall Insight.

It says even with the expected reduction, the energy price cap will still be £685 higher than it was in the summer of 2021, when the energy crisis started. Gas prices initially soared due to increased demand when the world emerged from lockdowns, and then moved even higher after Russia invaded Ukraine.

On Friday Ofgem is expected to lower its price cap on default dual fuel tariffs due to falling wholesale power prices.

It is likely to result in the average home energy bill falling from £2,074 for July to September to £1,823.89 for the fourth quarter. Ofgem’s price cap peaked at £4,279 in the first quarter but consumers did not pay that as they were protected by the Government’s Energy Price Guarantee (EPG), which set bills at £2,500.

The price cap fell below the EPG in July to £2,074 and Cornwall warned the ongoing conflict between Ukraine and Russia, as well as the need to source non-russian gas, increased power demands and threat of strikes at liquid natural gas (LNG) facilities in Australia will keep prices higher than they were pre-crisis.

Cornwall principal consultant Craig Lowrey said: “Those hoping to see a return to the kinds of bills seen at the start of the decade will be disappointed.

“Regrettably, it looks as if these prices may become the new normal.”

Although the price cap will fall between the third and fourth quarters, Cornwall’s analysis indicates it will rise to £1,979 in the first quarter of 2024, due to threatened strikes in Australia. Afterwards, it will drop back to £1,915.17 in the second quarter and £1,867 in the third.

High energy prices helped drive inflation, as measured by the consumer price index, to a peak of 11.1 per cent in October. Since then, it has moved back down to 6.8 per cent as fuel and food prices have fallen.

However with core inflation, which strips out volatile energy, food, alcohol and tobacco prices, unchanged in July at 6.9 per cent, the Bank of England is expected to hike its base rate again in a bid to get inflation under control.

Hussain Mehdi, macro and investment strategist at HSBC Asset Management, said: “With core inflation remaining stubborn there is now a good chance the Bank will implement another 0.25 percentage point rate hike at its meeting on September 21.”