Investec forecasts sub-£2,000 price cap

Falling wholesale costs will result in a sub-£2,000 price cap later this year, an industry expert has predicted, but prices are “still considerably higher than historic levels”.

In his latest update Investec analyst Martin Young said the forecast marks the first time since December 2021 that his company has predicted a cap below £2,000 and that switching could return this summer, albeit focused on customer service/ innovation rather than price.

Young said Investec’s July (Q3) cap estimate is now £1,981, while the October (Q4) estimate is £1,966.

He added: “This latest reduction in our estimates is welcome, but it does not disguise that these estimates are still considerably higher than historic levels, and challenging for many.

“We reiterate our view that social tariffs are needed. We urge government/industry/Ofgem to work together at pace in this respect.”

Calls for a social tariff have been ramping up recently and in Ofgem’s quarterly price cap update last month, the regulator’s chief executive said “there is a case for examining with urgency” the feasibility of such a tariff “for customers in the most vulnerable situations”.

Meanwhile, in Investec’s latest update Young further criticised the fact that policy costs fall largely on electricity which he labelled “perverse” given the push to electrify.

He added: “Government committed to publishing proposals on ‘rebalancing’ the costs placed on energy bills away from electricity in 2022, to incentivise electrification across the economy and accelerate consumers’ and industry’s shift away from volatile global commodity markets.

“We still await these proposals, and if government is serious about delivering net zero via increased electrification, it needs to bring these forward at pace.”

Young said at typical domestic consumption values, policy costs under the price cap excluding VAT are £131 for electricity and £34 for gas.

Should the government choose to remove these costs from the bill, rather than rebalancing them, Investec estimates the cost to be around £4.6 billion.

Responding to Investec’s concerns, a Department for Energy Security and Net Zero spokesperson said that the Energy Price Guarantee will have saved a typical household in Great Britain around £1,000 by the end of June.

They added: “In the meantime, we’re committed to helping people with rising costs by reducing inflation and growing the economy.

“The cost of energy has already been falling and we expect this to drop further over the coming months, which we fully expect suppliers to pass onto their customers.”