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If you thought the £2,000 energy price increase wasn’t enough to send shockwaves across UK families this April, here’s something else that could horrify the UK population further.

Ofgem, the energy regulator, has told a source in Whitehall that the cap could increase to more than double what has been predicted for the following review in October.

After April’s increase earlier this month, it has been understood that Ofgem told ministers in private that the price cap is likely to rise by at least £2,400 in October.

However, it has now been revealed that the energy regulator is warning of a worst-case scenario if the war in Ukraine intensifies, which could mean that they may not have a choice but to increase the cap to a jaw-dropping £5,000.

Is a £5,000 energy price increase likely?

Although many have suggested that the £5,000 energy price hike might be an extremely radical prediction, even a £2,400 increase predicted for October could negatively impact UK families and businesses even further.

It has only been two months since the last prediction for energy prices was set to increase, so it is still early days; however, it is good to be overly prepared, as this hike could hit some people very badly.

Why are energy prices rising?

The surge in natural gas prices – The main reason the price cap was raised was the escalation of natural gas prices, which increased to approximately four times their previous cost just before the price cap increase in April 2022.

Demand from China and Asia and European cold winter – There has been an increase in the market from China and Asia for gas and a cold winter in Europe in 2020/2021.

Lack of wind energy – The UK has invested heavily in renewable sources of energy; however, as renewables are mainly reliant on the forces of mother nature, this time, she wasn’t there to give a helping hand.

Instead, the lack of wind this summer meant that the renewable energy sources were in short supply, which meant the increasing demand for the alternative; gas energy.

Covid -19 lockdown – Demand has increased for gas after the world came out of Covid-19 lockdowns. This was good for the world economies for a short period as things started looking like we were getting back to some normality, as the use of energy to produce goods grew, as consumer spending was on the increase.

Russia’s Invasion of Ukraine – The war has intensified the gas supply problem. This is because a large portion of Europe’s gas supply comes from Russia. However, as sanctions have been ordered on Russia and their gas industry, the rest of the world is scrambling to find gas elsewhere. So, when there is less supply and more demand, the prices start to increase as a result.

The UK is gas reliant – Approximately 85% of UK homes use gas to power up their homes, but the UK has less than the average space to store gas compared to other European countries.

Will the UK government offer more financial help if the prices increase?

A source told the Daily Mail that Rishi Sunak would offer more financial help to families if the energy prices increased.

Mr Sunak has already pledged to offer a £200 energy bill discount. This money will be passed onto energy suppliers, which will allow everyone’s bills to be cut by £200. In addition, he has offered a £150 Council Tax rebate to ease the pressure off UK households and a £1 billion Household Support Fund.

Although, some of these initiatives have been criticised by charities and opposition leaders, especially regarding the £200 energy bill discount. Critics have said that the value is only a loan and will need to be paid back in five years.

If the cap goes up again in October, the government will need to do more to help those who are already feeling the struggle, especially as Autumn brings colder weather and increased energy usage.

In addition to this, Boris Johnson announced that a new Energy Security Strategy is being created to bring down the prices over the next few years. However, even the UK Business Secretary acknowledged that this will not affect bills for another 3 years because there is still a lot of work to install new power generation. It is questionable how struggling UK families will cope in the meantime?

When will the new price cap be set by Ofgem?

In August, Ofgem is set to announce the new price cap and will then hit people’s energy bills in October.

The new price cap that will be set is yet to be decided, but this is heavily reliant on how the world political situation will pan out. If sanctions continue on Russia, then the supply of gas will tighten, and prices will increase due to the demand.

How are increasing energy prices affecting UK households?

Ofgem said April 2022’s price cap rise is estimated to affect 22 million customers. This will mean that energy bills will rise by £693 for the average home.

Jonathan Brearley, chief executive of Ofgem, said, “We know this rise will be extremely worrying for many people, especially those struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way; they can.”

Charities have warned that the increase will move a quarter of UK households into fuel poverty, making it hard for families to make ends meet after they have paid their mortgage or rent. Essential costs such as food are rising, and petrol prices are increasing every day.

Find out who is the UK’s cheapest supermarket and how to save money on your food shopping bill.

It has also been suggested that credit card debt hit record highs last month, which shows that people are already struggling financially, as they are using credit to pay for their essential household expenses. This is exacerbating an already increasing UK debt problem.

What can people do if they are struggling with debt?

If you are one of those struggling households struggling to pay their household bills and get into debt, don’t let the problem fester. Instead, tackle the debt head-on and get debt help and advice.

There are different debt solutions to manage your credit card debt which include Debt Consolidation, Individual Voluntary Agreement (IVA) and Debt Management Plan (DMP). Take a look at the debt solutions available and pick the right one for you.

If you have debts of over £5,000, and you're struggling to repay them, get in touch today!

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