Uptick in wholesale energy prices pushes up cap forecasts

Investec has raised its price cap forecasts following an uptick in wholesale energy prices over the last few weeks.

The firm now expects the price cap to fall to £2,003 for typical dual fuel customer at the beginning of October – an increase of more than £130 when compared to its previous estimate of £1,870 made at the start of June.

Investec has also raised its price cap forecasts for the following three quarters, which it now puts at £2,132 for Q1 2024 (up from £1,952), £2,139 for Q2 2024 (up from £1,948) and £2,004 for Q3 2024 (up from £1,851).

From July, the price cap for typical dual fuel household paying by direct debit is due to fall to £2,074 – a reduction of more than £1,200 when compared to the current level of £3,280. However, the typical customer will only see a £426 reduction as their bill is currently capped at £2,500 under the government’s Energy Price Guarantee.

Source: Investec

The above figures are all based on the old typical domestic consumption values of 2,900kWh of electricity and 12,000kWh of gas per year. Alongside the latest price cap update, Ofgem announced new typical domestic consumption values of 2,700kWh of electricity and 11,500kWh of gas, which will be used to quote prices from October.

On the basis of the new values, Investec said its latest price cap forecasts are £1,976 for Q4 2023, £1,909 for Q1 2024, £2,032 for Q2 2023 and £2,038 for Q3 2024.

The company caveated that the observation window for the Q4 2023 price cap period has only been open for little over a month, meaning its forecasts remain highly volatile.

Investec noted that some suppliers are now offering customers fixed price tariffs at unit rates slightly above those of the price cap level from July. It said it does not expect to see “a deluge of cut price deals” any time soon, with switching continuing to be driven by customer service and innovative products.