A surge in wholesale gas prices after Russia launched its invasion of Ukraine could see annual energy bills soar above £3,000 for millions of households, an analyst has warned.
Bills are already set to climb by a typical £693 to £1,971 in April after regulator Ofgem announced the latest increase in the cap earlier this month.
That was because of a surge in wholesale prices over the latter part of 2021 which has yet to abate.
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Why Russia invasion could affect the UK’s cost of living
The market has come under further pressure because of the conflict, since Russia is a major supplier of gas to Europe.
On Thursday, the UK price of natural gas for next-day delivery surged by as much as 73% and though it later gave up some of the increase was still 42% up on already-elevated levels by the end of trading.
Even at the time the April energy price cap was announced earlier this month, analysts predicted even worse in store for October when the cap is reviewed again.
A forecast at that time by Cornwall Insight pencilled in a hike to £2,329 for the autumn.
Investec analyst Martin Young now thinks that, in the light of surging wholesale market prices, the level will soar past £3,000.
Mr Young said: “This could be devastating for UK households with elevated fuel poverty, and an ‘eat or heat’ dilemma.
Motorists are under pressure from rising fuel prices
“The political crisis will intensify, and government will need go further than current measures, and be more targeted.”
Boris Johnson acknowledged the impact of the market turbulence on UK consumers – also facing a rise in already-record fuel prices as oil soars past $100 a barrel – when he addressed the House of Commons earlier.
“The government will do everything possible to save our people from the repercussions for the cost of living,” the prime minister said.
Soaring energy prices are the key factor behind Britain’s current cost of living squeeze – which has seen inflation hit a three-decade high of 5.5% and prompted the Bank of England to forecast that it will top 7%.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, thinks that the surge in wholesale oil, natural gas and electricity caused by the Ukraine crisis will “if sustained” push the CPI rate of inflation up to 8.2% in April, and only coming down to 6.5% by the end of the year.