Brexit referendum added £2bn to energy bills

The Brexit referendum added nearly £2 billion to energy bills over the following year due to the falling value of the pound, new research from Imperial College London has found.

The depreciation of sterling was almost entirely to blame for a 6 per cent rise in gas and electricity prices, according to the analysis commissioned by Ofgem. This equated to an extra £75 on the typical dual fuel energy bill.

The report warns a further collapse in the exchange rate resulting from a hard Brexit could add another £61 to the average bill by March 2020.

In the year following the referendum, the value of the pound dropped by roughly 15 per cent against the dollar and euro, leading to an 18 per cent increase in wholesale electricity prices.

“With wholesale costs accounting for over a third of the final electricity price to consumers, the impact of the referendum on exchange rates therefore appears to correspond almost exactly to the 2016/2017 increase of about 6 per cent in retail electricity prices,” the report explains.

This added roughly £1 billion to the total cost to consumers and more than £35 to the average electricity bill.

Meanwhile, wholesale gas prices grew by 16 per cent, increasing the total cost to consumers by £0.9 billion and adding more than £39 to the average gas bill.

Source: Institute for Sustainable Resources, Imperial College London

The reports says a hard Brexit could be expected to drive up wholesale electricity and gas prices by 15 per cent and 13 per cent respectively over the year following the UK’s departure from the EU on 29 March 2019.

The total cost to consumers would swell by £0.8 billion for electricity and £0.7 billion for gas. The typical electricity bill would rise by £29 and the typical gas bill by £32.

The forecast assumes a 12 per cent fall in the value of the pound.