Energy Bills Set to Rise Sharply in Great Britain
Household energy bills in Great Britain are projected to increase by over £330 annually, reaching nearly £2,000 from this summer, as the ongoing conflict in the Middle East drives the UK’s gas market to its highest levels in three years.
According to analysis by the energy consultancy Cornwall Insight, a typical combined household gas and electricity bill is forecast to reach £1,972 annually from July under the UK government’s quarterly price cap.
This new forecast surpasses an estimate made just two weeks prior, which predicted a rise in the price cap for the April to June period after only five days of conflict in the Middle East.
The current price cap, set by Great Britain’s industry regulator Ofgem, was temporarily reduced by £117, providing a brief reprieve from rising bills for millions of households. However, prices are expected to increase significantly starting this summer.
European Gas Prices Surge Amid Middle East Conflict
The latest forecast indicating a 20% increase in household energy costs is driven by a rise in European gas prices following a significant escalation in the Middle East conflict. This escalation included attacks on some of the region’s most critical infrastructure for the first time since the conflict began three weeks ago.
On Thursday, European gas prices rose by 30% after Qatar confirmed that missile strikes had caused extensive damage to the world’s largest processing facility for seaborne liquefied natural gas (LNG). Qatar also indicated that repairs could take up to five years. Additionally, oil and gas tankers from the Gulf remain unable to enter the global market via the Strait of Hormuz, which is effectively controlled by Iran’s Islamic Revolutionary Guard Corps.
Although Europe’s gas markets eased on Friday, prices remain twice as high as they were before the conflict began. The market price for UK gas delivered next month decreased by 2% to 153p per therm on Friday from Thursday’s peak of 180p, but prices still remain nearly double the pre-conflict levels.
Rising Fuel Costs for British Motorists
British motorists are also experiencing increased energy costs at the pump. Petrol prices have risen by nearly 9% over the past three weeks, reaching 144.51p per litre, as global oil prices climbed to their highest levels in three and a half years. Diesel prices have increased by 17%, now standing at 166.24p per litre, according to the RAC.
The international oil benchmark, Brent crude, traded at approximately $109 per barrel on Friday, down from a peak of $119 the previous day. Despite this decline, the global oil price remains nearly 50% higher than before the conflict began.
Mortgage Rates Increase Amid Economic Uncertainty
Households are also facing higher mortgage rates in the UK, despite the Bank of England’s decision to keep base rates steady at 3.75% on Thursday.
Data from Moneyfacts shows that the average two-year fixed mortgage rate has risen from 4.83% at the start of March to 5.35% as of Friday. This increase translates to approximately an additional £900 per year in borrowing costs for a £250,000 mortgage over 25 years.
Moneyfacts further calculated that if the Bank of England’s base rate rises to 4% or 4.25%, as predicted by market pricing, the average interest rate on new mortgages could stabilize between 5.50% and 5.75%.
This scenario could add between £1,000 and £1,500 annually to the cost of borrowing £250,000 over 25 years compared to rates at the beginning of March.
Adam French, head of consumer finance at Moneyfacts, said:"Swap rates, which underpin mortgage pricing, have risen sharply following the decision to hold the base rate at 3.75%, with markets interpreting commentary from the Bank of England as leaving the door open to rate rises amid ‘Trumpflation’ fears.With two- and five-year swaps now sitting at their highest level in more than a year, lenders are once again facing higher funding costs, and this will feed through into mortgage pricing."
International Energy Agency Urges Energy Conservation
Amid the risk of steep increases in household energy costs, the International Energy Agency (IEA) has urged global governments to consider measures aimed at reducing energy consumption.
The IEA noted that several governments are already contemplating policies to conserve energy, such as encouraging remote work to reduce commuting and promoting the use of public transport or car-sharing when travel is necessary.
The Paris-based agency also suggested that governments could lower highway speed limits by at least 10 km/h (6.2 mph) to reduce fuel consumption for passenger vehicles and freight transport.
The IEA’s energy-saving recommendations primarily target road transport, which accounts for approximately 45% of global oil demand. Additionally, the agency has proposed plans to conserve liquefied petroleum gas (LPG) usage in transport and heavy industry, particularly in developing countries where LPG is widely used by households.
