Brits are facing substantial energy bill increases. Here’s why

LONDON — An expected surge in U.K. energy prices this winter is being described as a national emergency, posing at least as great a financial threat as the coronavirus pandemic. 

The upcoming increase in a regulator-set limit on consumer energy bills is predicted to push a majority of households into fuel poverty, and put a strain on budgets that could hammer industries like hospitality, travel and retail. 

On Wednesday, consultancy Auxilione published a revised forecast for the cap, which almost all energy suppliers are charging, predicting an increase in its current rate of £1,971 ($2,348) a year to £3,635 for the three months from Oct. 1.

In the following quarters, it says the cap could hit £4,650 and £5,456 without intervention, taking it to more than a fifth of the median UK income. 

The average household paid £1,400 for its energy in October 2021.

Global wholesale gas and electricity prices were already rising in 2021 due to higher demand as economies reopened from Covid-19 lockdowns, and as competition for supplies between regions intensified. 

Russia’s invasion of Ukraine in February then led to sharp cuts in gas supplies to Europe, sending European natural gas prices to a record high and triggering a rise in electricity prices, too. 

Even though the U.K. gets only 3% of its gas from Russia, versus around 35-40% across the European continent, it is connected by pipeline to the rest of Europe and is a net importer.

The U.K. has particularly high gas demand, as it has a greater proportion of homes heated with gas than most European countries and generates about a third of its electricity from burning natural gas.

“The impact has been exacerbated by high electricity prices in Europe, where drought conditions have affected hydro power plants and unplanned outages have reduced French nuclear output,” Joanna Fic, senior vice president at Moody’s, told CNBC.