Ukraine crisis could see energy price cap rise by £400 for UK households

3 March 2022, 15:25

The energy price cap could rise by £400 after Russia launched its invasion of Ukraine, analysts at a leading consultancy have warned.

Cornwall Insight believe the price cap might hit £2,900 for the average household in October.

The prediction comes directly after Russia's president Vladimir Putin launched an invasion of Ukraine on Wednesday last week.

Cornwall senior consultant Dr Craig Lowrey said: "Following the catastrophic events in the Ukraine and the subsequent supply concerns across Europe, wholesale prices have been extremely volatile.

"On Friday we saw our energy price predictions fall by over £200, only for them to rocket to the record levels we see today."

Russia has been hit with a range of economic sanctions in response to the attack.

The market has come under further strain because of the conflict, as Russia is a major supplier of gas to Europe. This has directly led to an increase in wholesale gas prices.

The UK price of natural gas for next-day delivery surged by as much as 73% at the onset of the invasion.

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Emma Pinchbeck, chief executive of Energy UK, said households might have to pay between £2,500 and £3,000 per year for their supplies in October.

This would see energy prices more than doubling from the current cap, which is set at £1,277 per year.

The predictions come as Britain faces a cost of living crisis - with millions of people already facing a hike in their household finances.

The energy price cap is already scheduled to rise to £1,971 from the beginning of April, as well as increases to National Insurance and rising inflation.

The cost of living crisis has currently seen inflation hit a three-decade high of 5.5% and prompted the Bank of England to forecast that it will top 7%.

The original energy cap rise was due to rising prices in Europe at the end of 2021 that have yet to resolve. The main reason behind the rise was fall-out from the coronavirus pandemic.

The current conflict is estimated to only further increase energy prices, with an updated October price cap set to be announced in the summer.

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But many regulators say the estimates are dependent on an early and small data range that is continually changing.

Regulator Ofgem has said early predictions on the energy price cap rise are not definitive. They cite the estimates made six months ago as being wildly different to the cap that was later announced.

Dr Lowrey similarly said the uncertainty of the political situation makes it difficult to know just how much households will be affected by the price rises.

"With the response of countries and companies to the actions of Russia changing almost hourly, there is no doubt these peaks and troughs are set to continue at least in the short term," he said.

"The UK Government will need to be ready with ways to mitigate the impact on consumers, with an increase in financial support to households likely to be a necessity, in addition to renewed considerations on support to business customers."