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By Eamon Farhat
UK household energy bills are poised to jump by about 25% in January amid sharpened tensions in the Middle East, according to a Bloomberg Economics forecast that threatens to upend Prime Minister Andy Burnham’s drive to bear down on the cost of living.
The regulator Ofgem will use energy futures prices observed mid-August to mid-November to reset a price cap on domestic energy bills in January, a period that so far includes a run-up in wholesale gas prices, Bloomberg Economics said Tuesday in a note. That means the cap is expected to rise by £427 ($575) to about £2,150 a year for a typical household, economists Matt Bunny and Dan Hanson said in the analysis. The quarterly adjustment means bills are already set to rise by 4% on Oct. 1.
Rising energy prices threaten to stoke inflation in the wider economy with the economic hit to ordinary Britons dwarfing the benefits of early moves by Burnham to ease living costs since he took power in July. On his second day as premier, he scrapped value added tax from household electricity bills from Oct. 1, a move the government said would save families on average £45 a year.
European energy prices have jumped since the Iran war began in late February, disrupting oil and gas supplies from the Persian Gulf. UK month-ahead gas futures have risen by 150% since the conflict started, while the equivalent power contract has more than doubled.
Bloomberg Economics said the latest increase in energy costs could push wider inflation above 4% in 2027, double the Bank of England’s target. That outlook could lead the central Bank to raise interest rates later this year, the analysts said.
Burnham and Chancellor of the Exchequer John Healey now face a tricky run-up to the administration’s first budget on Oct. 28. The £23.6 billion headroom Healey inherited against the government’s fiscal targets has already been cut in half by a surge in borrowing costs fueled by the US-Iran conflict. That leaves little room to maneuver as they try to deliver the “breathing space,” for families pledged by Burnham on his first day in office.
Note: For consistency over the series, figures are based on Typical Domestic Consumption Values (TDCV) prior to the reset in July 2026. Bloomberg Economics do not adjust earlier figures for the changes to TDCV in 2023.
Sources: Bloomberg Economics, Ofgem
The government is now considering further measures, including extending the £150 Warm Home Discount to people who do not currently qualify, potentially including some disabled people, carers and pensioners. Such steps could be announced in the budget, before taking effect over the winter.
Read More: Britain Faces Winter With High Gas Prices and Thin Reserves
A forecast from EDF, one of the UK’s biggest energy suppliers, show a similar price increase to Bloomberg Economics, saying their prediction is up by about £119 compared to a week earlier. Energy consultancy Cornwall Insight’s last forecast in August showed a smaller increase but wholesale prices have surged since then.
The rise in power and gas costs forecast by Bloomberg Economics would push household bills closer to the £2,500 cap brought in by the government following Russia’s invasion of Ukraine in 2022. At the time, market prices were much higher, but the government subsidized the difference so that a typical household only paid the cap. The support cost the government about £21 billion.
— With assistance from Dylan Griffiths
(Updates with political context starting in first paragraph.)
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