Energy payments are set to fall – however will nonetheless value over £1,500

The average household energy bill is set to fall by £116 in July – but will top £1,500 a year.

The typical home currently pays gas and electricity bills of £1,690 a year – the level of the Ofgem price cap. 

The price cap limits the bills paid by more than 80 per cent of the country’s households that are on variable-rate energy bills, paying by direct debit.

The price cap is now expected to fall by £116 – or 7 per cent – to £1,574 a year from 1 July, for average use, according to analysts at Cornwall Insight.

This is slightly higher than the £1,560 bill Cornwall Insight had originally predicted.

However, it does still mark an overall slow downward trajectory for energy bills. The average price-capped bill was £2,074 a year last July.

Energy regulator Ofgem is responsible for setting the price cap, which limits daily standing charges as well as unit rates for gas and electricity used on variable-rate deals.

Ofgem does not speculate on the future of its price cap, but Cornwall Insight’s predictions have been historically fairly accurate.

Cornwall Insight then thinks the price cap will rise to £1,636.44 in October and edge up slightly again to £1,634.20 in January 2025. 

Craig Lowrey, principal consultant at Cornwall Insight, said: ‘Our projections suggest that from July, the average annual bill will fall by around £500 compared to last summer, offering further relief given the quarter-on-quarter drop seen in April.

‘Of course, we must recognise lower prices don’t erase all the problems.

‘The very fact we are still seeing bill levels which are hundreds of pounds above pre-crisis levels underscores the ongoing challenges faced by households.’

Ofgem changes the price cap four times a year.

Richard Neudegg, director of regulation at Uswitch, said: ‘A predicted 7 per cent drop in energy prices in July is clearly good news, with the price cap looking likely to hit its lowest level in over two years.’

What is the Ofgem price cap? 

The price cap was brought in during January 2019 to stop energy firms overcharging customers on variable-rate tariffs.

Most households had fixed-rate energy deals at the time, and only moved onto variable-rate tariffs if they did not renew at the end of their term.

Why is the price cap now so important?  

After energy bills began rising in late 2021, gas and electricity companies responded by pulling all new fixed-rate deals from the market.

They did this to try to avoid the widespread collapse that affected many energy firms, which were suddenly being forced to sell power for far less than it cost them to buy it.

Because cheap fixed-rate deals had almost disappeared, almost all homes ended up on variable tariffs regulated by the Ofgem price cap.