The average household could face a £500 energy bill in January 2023, with an annual price cap forecast of £3,850, far exceeding the already gloomy bill rise predictions made earlier this year. The forecast, from utility consultancy BFY Group, came as Russia took further steps to cut gas supplies to Europe, further strangling the market. The country has drastically cut gas supplies to many European states since waging war with Ukraine. The bitter conflict has increased pressure on global food, gasoline and domestic energy costs. “If you look back at the same time last year, your bill is likely to be three times what you would have been paying in January,” Gemma Berwick, senior adviser at BFY, told the Independent. The forecasts have added to economists’ concerns about the depth and duration of the cost-of-living crisis. Over the next two years, inflation will affect living standards at a rate not seen since at least the 1950s, said Paul Dales, chief UK economist at Capital Economics. “There is a big blow to the spending power of households,” he said. Disposable income, a measure of how much money households have left after paying for essentials, will fall by 3 per cent this year and by 2 per cent next year, according to Mr Dales. “That hasn’t fallen more than 2 percent in a calendar year since 1955,” he said. The sobering findings come as Citizens Advice said it was dealing with record levels of requests for help from people unable to top up their prepayment meters. “Our data gives a picture of the tough choices facing families everywhere as the cost of living is reduced by the crisis,” said Dame Clare Moriarty, chief executive of the charity. “What’s more worrying is that the issues we used to see in the winter – such as people not being able to top up their prepaid meter – are peaking in the height of the summer.” The BFY forecasts are “terrible news for everyone”, Ms Berwick said, but those with prepaid meters will be most exposed. This group, who tend to have lower incomes, will have to find the cash immediately, rather than smoothing out the impact of winter bills through a year’s worth of direct debits. “Prepaid customers will try to top up their meters with £500 in January,” he said. Energy regulator Ofgem’s price cap will have to take these recent higher prices into account when it sets a new figure in August. Its so-called observation window for monitoring energy markets began in February and will end on August 18, before the new cap is announced a few days later. “That means most of the data has already been collected,” Ms Berwick said. Cornwall Insight, another consultancy, forecast a price ceiling of £3,364 for January 2023 earlier this month, but Russia’s increasingly combative approach to gas exports has worsened the outlook, market experts said. BFY now believes Ofgem should set the price cap change earlier in October to £3,420, with another rise expected when the cap is reviewed in January to £3,850. The findings will heighten pressure for more government intervention in the coming months. Policy experts at charities including Citizens Advice called on the government to upgrade benefits in October based on September’s snapshot of price rises, rather than leaving the most vulnerable facing a six-month delay, taking data from April current year. “It’s clear our charts are only going in the wrong direction,” Dame Clare said. “The Government has done the right thing by bringing support through the benefits system to help people who are struggling the most. He must now be ready to be in action again before winter sets in,” he added. Economists are particularly concerned about the impact on those households with little or no relief in their monthly spending. “The most worrying thing for me is that these people who are going to suffer the most are already at the lower end of the income spectrum,” Mr Dales said. That means lower-income consumers are likely to cut back on what they can to get by, such as insurance policies or pension contributions, with serious long-term consequences for the wider economy, he said. “You call back to the future and pay for the now,” he added. The cost of living crisis is set to play a central role in the ongoing Conservative leadership contest. The two contenders, Liz Truss and Rishi Sunak, clashed over how best to support households. Mr Sunak staged a U-turn on Tuesday by pledging a temporary reduction in VAT on household fuel bills, having previously criticized Ms Truss’ tax cut plans. However, if the VAT cut were made permanent, it could be “a move in exactly the wrong direction” by encouraging households to use more energy, according to Stuart Adam, senior economist at the Institute for Fiscal Studies, an economic think tank.
