Martin Lewis is warning millions of households to brace for a “very bleak winter” after a new energy price cap forecast suggests energy bills could soar.
Predictions indicate that the cap could rise by an extra £1,000 from October, with the average user on a standard tariff expected to see their bill go up to almost £3,000 for the next period.
The latest estimate comes from analysts at Cornwall Insight that said the next Ofgem price cap looks set to increase as a result of a spike in wholesale gas prices last week.
The current cap of £1,971 is already a record which beat the previous high by 54%, but the next period, which runs from October to December, is expected to soar to £2,980.
What did Martin Lewis say?
MoneySavingExpert.com founder Martin Lewis took to social media to share the latest forecast, saying “people need to be aware of the very bleak winter coming”.
Writing on Twitter, he said: “Just got latest @CornwallInsight price cap predictions. Wholesale prices spiked heavily last week, so they're up a lot.
“Today's price cap: At typical use = £1,971/yr. Prediction Oct - Dec: UP 51% (£2,980/yr typical use). Prediction Jan - Mar: UP 1% (£3,000/yr typical use).”
The consumer champion said he will be updating his guide on energy fixes this week to help people better understand if they should stick to the price cap or opt for a fixed tariff deal.
Mr Lewis’ current ‘magic number’ for fixing is 35%, but this was based on the October price cap rising to £2,800, rather than the latest estimate of £2,980.
He said: “If you're offered a year's fix at no more than 35% above your current price-capped tariff, or 40% more if you very strongly value budgeting certainty, it's worth considering.”
What is the energy price cap?
The energy price cap limits the rates a supplier can charge for its default tariffs, including the standing charge and price for each kWh of electricity and gas.
Ofgem determines its energy price cap by calculating how much it would cost a typical energy supplier to supply an average home.
It does this by analysing several factors that impact energy bills, such as wholesale gas and electricity costs, as well as usage and market data over a review period.
Since its introduction in 2019, the cap has changed twice a year - once in April to cover the summer months when energy needs tend to be lower, and again in October for the more energy intensive winter months.
However, Ofgem announced last month that it is considering changing the cap every three months as it says this would help both consumers and suppliers.
The price cap is already worse for customers than it has ever been, with the average household seeing energy costs increase from £1,277 to £1,971 in April.
Previously, the price had been as low as £1,042 in the summer of 2020 - the cheapest since the policy first came into force in 2019.
As well as a rise in October, Cornwall Insight predicts the cap will see a further hike between January and March 2023, rising to £3,003, before dropping down to £2,758 in April and £2,686 in July.
The rapidly increasing energy cap prompted Chancellor Rishi Sunak to announce a £15 billion package of support last month to tackle the rising costs.
Measures included a £400 energy bill discount for every household, plus a one-off £650 payment to more than eight million low-income households on benefits. Eligible households are due to receive the first instalment of the £650 payment from next month.