U.K. Households Face £18 Billion Increase in Energy Bills
(Bloomberg) -- U.K. households are set for an 18-billion-pound ($24 billion) increase in energy bills next year, potentially squeezing consumer spending and adding pressure on the Bank of England to increase interest rates, according to Investec Plc.
A surge in gas prices has left the energy price cap -- the ceiling for what firms can charge most customers -- on course to increase by 56% in April, to an average of 2,000 pounds per household a year, analysts Nathan Piper, Sandra Horsfield and Martin Young wrote in a report.
The increase could add 1.8 percentages points to headline inflation in April. The total increase also equates to about 1.3% of consumer spending, forcing Britons to reexamine their consumption patterns.
It comes as the government opened a consultation on Tuesday to help fix the country’s beleaguered energy market, where 24 household suppliers have gone bust since early August. The cost of redistributing and paying for those customers is spread across the industry, including a 1.7-billion pound tab for Bulb Energy Ltd., the largest casualty of the energy crisis.
Energy regulator Ofgem has predicted that the collapse of suppliers will add between 80 and 85 pounds to energy bills through 2022 and 2023.
U.K. inflation jumped to 5.1% in November, the highest rate since 2011, prompting the central bank to raise borrowing costs this month for the first time since the start of the pandemic. A further energy-drive increase in inflation could prompt more action from the BOE, the Investec analysts wrote.
To cover the increase in bills, households would have “cut back on discretionary spending on other items, eat into their excess savings built up during the pandemic” or “obtain higher wages from employers,” Investec said.
While that is “plausible to some extent given the generally tight labor market,” it risks adding “further to inflation pressures and perhaps prompting further rate rises by the Bank of England,” the analysts said.
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