By Geoffrey Smith
Investing.com -- U.K. households face a rise of around 80% in their electricity and gas bills from October after the national energy market regulator Ofgem jacked its price cap sharply higher again.
Ofgem said its price cap for the typical annual dual fuel tariff will rise to 3,549 pounds from October 1st, from 1,971 pounds currently. That's roughly three times what U.K. consumers were paying a year ago, and variations according to region and to actual demand may lead to some households paying even more.
The increase in regulated prices is set to drive another big rise in inflation, as well as greatly reduce disposable income across the British economy. It comes on top of a raft of tax increases announced earlier this year by the U.K. government to close the yawning budget deficit that widened significantly during the pandemic.
The new cap will only stay in place for three months, rather than the usual six, due to the higher volatility in global energy markets since Russia's invasion of Ukraine in February. As such, another substantial rise is possible in January.
"It's a total catastrophe," said Torsten Bell, chief executive of the Resolution Foundation, via Twitter. Applying Ofgem's methodology, he estimates that the annual cap will rise by another 52% in January to 5,386 pounds in January.
For January alone, he estimated, the typical bill will be over 700 pounds - "well over HALF of the disposable income of the 4 million households on prepayment meters who will be asked to pay that energy upfront."
The U.K.'s energy crisis isn't confined to households, however. Thousands of U.K. businesses face bankruptcy this winter owing to their inability to pass higher fuel bills on to their customers.
"The new figures small firms are being quoted for energy costs would be laughable if their potential effect on the business were not so serious," Martin McTague, head of the Federation of Small Businesses, said last week, noting that the association's members are reporting four- or five-fold increases in their bills.
"These are huge, unmanageable sums for businesses whose margins have been battered and whose reserves have been depleted by the disruption to trading caused by the pandemic," McTague said.
Even though Ofgem's move had been well flagged in advance, the pound fell in response to the news, which underlined the alarming realities of the coming winter.
By 05:00 ET (09:00 GMT), sterling was at $1.1798 on the day, its lowest since the early phase of the pandemic.