Cost of living: Future fall in energy bills may prompt return of switching

A typical domestic energy bill will rise in April - but predictions of subsequent falls may prompt the return of competition and customer switching.

At present, a government guarantee sees the annual gas and electricity bill for an average home limited to £2,500, alongside an additional £400 discount.

That cap will rise to £3,000 in April, but forecasts suggest the limit will soon become redundant.

Analysts Cornwall Insight say a typical bill will drop back to £2,153 in July.

The energy consultancy expects the annual bill for an average household to remain at close to that level for the rest of the year.

"While tumbling cap projections are a positive, unfortunately, already stretched households will be seeing little benefit before July," said Craig Lowrey, principal consultant at Cornwall Insight.

However, he said that the conditions later in the year could lead to "the return of competitive tariffs", and with it the chance for consumers to "take back some control over their energy bills".

Investment firm Investec has also made very similar forecasts to Cornwall Insight - pointing out that the drops mean the total bill faced by the government to subsidise energy bills will be lower than previously expected.

There has been a sharp drop in wholesale gas and electricity prices in recent weeks that has raised hopes that the worst of the energy crisis could be receding.

A huge majority of households in the UK have a variable or default gas and electricity tariff. The price per unit of energy is capped in England, Wales and Scotland at what is considered an appropriate level by the energy regulator Ofgem. The cap is set every three months.

Huge costs faced by suppliers meant that would have left a household using a typical amount of gas and electricity paying £4,279 a year from the start of January.

So, the government stepped in to cover some of that cost for people across the UK. Its Energy Price Guarantee means the typical household pays £2,500 a year now, rising to £3,000 a year in April.

That is still a massive hike on the bills people had been accustomed to. In the winter of 2021-22, the typical annual bill was £1,277.

Extra cost-of-living payments are primarily helping the more vulnerable with those higher costs.