Energy price cap set for steepest January rise in four years, forecaster says

Millions of households face a sharp increase in energy costs at the start of 2027, according to a new forecast that puts the typical annual bill £276 higher than the level that takes effect this week. Cornwall Insight, the consultancy widely respected across the energy industry and politics, said the typical dual-fuel bill paid by direct debit would rise to £1,999 in January — an increase of about 16% on the current cap, and the largest single jump since 2022. Similar forecasts have been made by energy suppliers.

The warning lands at a difficult moment. The January price-setting window is already halfway through, and Ofgem will not publish the official cap until late November, leaving households and campaigners with months of uncertainty in which to plan. Craig Lowrey, principal consultant at Cornwall Insight, said a rise was "all but certain" given how the gas market has moved, and warned that rebuilding depleted storage could keep prices elevated "well beyond the winter".

The immediate change arrives on Thursday, when the regulator's autumn cap takes effect. About 20 million households in England, Scotland and Wales remain on variable tariffs capped by Ofgem, which limits the price charged for each unit of gas and electricity rather than the total bill. For those households, Thursday's move amounts to a 4% rise — roughly £60 a year, or about £5 a month — lifting a typical annual bill to £1,723, assuming that level were sustained for twelve months.

That increase would have been steeper had ministers not extended the reduction in VAT on domestic energy, which is worth the equivalent of roughly £45 a year off the typical bill. EDF chief executive Simone Rossi said the UK was "walking into a second energy crisis" and called for the VAT cut on electricity, which expires on Thursday, to be extended. His intervention reflects wider industry anxiety that a modest autumn increase will prove to be a brief reprieve rather than a turning point.

Behind the January projection lies disruption to gas supplies linked to the conflict in the Middle East, which has left storage levels across Europe unusually low heading into winter. Cold weather typically pushes European and UK gas demand sharply higher at exactly the point in the year when stocks are most depleted, and analysts warn the market is unusually exposed to any renewed instability in the region.

Lowrey said the timing could not be worse. "These prices are going to hit households hard. January is already a difficult month for many, with cold weather and bank balances still recovering from Christmas," he said. An easing of tensions could still reduce the eventual increase, but with the pricing period under way and no clear sign of a truce or of falling international energy prices, the direction of travel for billpayers on variable rates looks firmly upward.

The history of the cap shows how sharply the market can move. Typical annual bills stood at £1,673 for the dual-fuel direct debit household in early 2022 before surging to a peak of £3,582 in the summer of 2023, then falling to a low of £1,414 by July 2024. Since then the figure has oscillated in a narrower band of roughly £1,543 to £1,655, and forecasts point to a renewed climb to £1,584 in early 2026 and £1,663 by the summer of that year. The January projection is calculated on updated typical household consumption values, so part of the apparent jump reflects how usage is measured as well as changes in unit prices.

For consumers, the prospect of another winter of high bills is arriving alongside steep increases elsewhere. Aaron Richards, from Maidenhead, said he is already responding to higher costs by eating fewer takeaways, working additional overtime and tightening his budget. He also drives a diesel car and is paying record high prices at the pumps to get to and from work.

"I just feel like everything's going up. How far is it going to go? Someone's got to step in," Richards said. He added that he knows people who cannot afford to heat their homes, and argued that housing and food are essentials which should not be a struggle for anyone to access.

The cumulative effect of several years of elevated domestic energy prices is still working through household finances. Ofgem data shows customers collectively owe more than £5bn in unpaid bills and charges to suppliers, a total that campaigners say is a legacy of the price spike and evidence of how hard some households are finding it.

The regulator has a proposed debt relief scheme on the table, but consumer and anti-poverty groups have repeatedly pressed it to move faster, and urged the government to provide the funding needed to implement it. Adam Scorer, chief executive of the fuel poverty charity National Energy Action, said the situation was "unsustainable, not just for households but also for the market as a whole".

Ahead of the Budget, Scorer called for additional targeted support for the households most at risk this winter, alongside concrete action on energy debt and work to improve the least energy-efficient homes. With the official January figures still weeks away, the forecast leaves households, suppliers and policymakers with a stark choice between bolstering support now or allowing another winter of high bills to land on families that have not yet recovered from the last one.