Households will be hit by another “significant rise” in energy prices next spring, regulator Ofgem has warned, as gas prices continue to rocket worldwide.
The regulator’s chief executive, Jonathan Brearley, said the price cap, which limits how much energy providers can charge per unit, would rise in line with “unprecedented” increases in gas prices right now.
The cap is revised twice a year and is next due to be revised in April.
The cost of gas is currently at a record high as economies around the world open up after the Covid crisis.
Jonathan Brearley told the BBC that the price cap was there to stop firms making unfair profits, but “legitimate costs have to be passed through”.
It comes as another round of meetings between the industry and ministers will continue today amid warnings that soaring prices could shut factories and affect jobs.
Sectors such as steel manufacturing have called for a price cap to stay afloat.
The Unite union urged the prime minister to “get a grip” to avert job losses if companies have to shut production because they cannot cope with the increased cost of energy.
The threat to jobs comes as millions of households are still still reeling from the last energy price cap which kicked in on October 1. It follows the closure of Covid support, a £20 a week Universal Credit cut and rocketing inflation.
Miguel Patricio, the boss of Kraft Heinz, says people should also ‘get used to higher food prices’.
Unlike in previous years, he said, inflation was “across the board”, adding that the brand’s prices have already risen several countries.
The cost of ingredients such as cereals and oils has pushed global food prices to a 10-year high, according to the UN Food and Agriculture Organisation.
Patricio told the BBC: “Specifically in the UK, with the lack of truck drivers. In [the] US logistic costs also increased substantially, and there’s a shortage of labour in certain areas of the economy.”
So what changes are coming that affect the cost of living and how do they affect you? We take a closer look below.
How the rising cost of living affects you
The decision to revoke the £20 a week Universal Credit uplift has been hugely controversial with families warning they will struggling to stay out of poverty without it.
It had been increased by £20 a week during the pandemic in a bid to help claimants get by.
Six million families receiving Universal Credit have lost 5% of their income on average, while another million have lost more than 10%, think-tank the Resolution Foundation found.
The scheme officially ended on 6 October.
However, the exact date the money will stop being paid will vary depending on which day people usually receive universal credit.
The standard allowance for a single person aged under 25 will fall back from £79 a week to £59. That’s a drop of 25%.
For a couple, where either one of them is 25 or over, their allowance drops from £137 a week to £117 – a fall of 15%.
If you’re affected, you can see what additional support you may be entitled to using our benefit calculator.
Food and drink prices
The most recent inflation figures show prices rose by an average of 3.2% in the 12 months to August. The Bank of England now thinks the figure could go above 4% by December and stay that high until the spring.
Combined with the lorry driver crisis, rising oil prices and supply chain disruption, many retailers are pushing up prices and introducing limits on essential goods.
There are also warnings that items could be in limited supply over Christmas, as a drop in delivery drivers and new European export rules means huge delays on goods entering the UK.
The government has extended visas for HGV workers, however this ends on Christmas eve.
Separately, the Office for National Statistics said the price of food and non-alcoholic drinks in shops and supermarkets rose by 1.1% on the month to August – the highest rate of growth since 2008.
How the energy bills crisis affects you
Bills are soaring and analysts predict they could rise by 30% next year amid a global gas shortage.
Research agency Cornwall Insight forecasts volatile gas prices, with the potential collapse of even more suppliers will push the price cap to about £1,660 by summer.
That’s almost a third higher than the record £1,277 price cap set for winter 2021/22.
Households are, for the first time since it was introduced, being told to stick to variable tariffs as these are protected by the energy price cap. Fixed deals, meanwhile, are rising to record highs to reflect rising wholesale costs.
If you do stick to a variable tariff, make sure you switch before next April to ensure you aren’t hit by the next price cap increase.
Petrol prices could hit all-time highs before Christmas, the RAC has warned. It said the average price of a full tank was already about £12 higher in September than a year earlier.
The increase was triggered by a driver crisis that caused delays to some forecourts – and forced others to close completely. Others were run dry by panic-buyers who only exacerbated the problem.
Kevin Brown, a savings expert at the investment firm Scottish Friendly, accused the prime minister of failing to account for an “alarmingly fast-paced cost of living crisis”.
“Our own analysis estimates that households are already swallowing at least £442 worth of energy and petrol price rises on average this winter,” he said.
If the petrol price surpasses £1.60 a litre – it is currently at an eight-year high of 138p amid predictions of hitting an all-time high by Christmas – the report said an individual would need to find an extra £700 to cover their energy and fuel costs or more than £1,200 if a couple both drove to work.
Petrol and energy costs made up about 40% of August’s inflation figure, the highest level for nearly a decade. “This is, in short, totally unsustainable,” Brown said.
“Wage increases are well and good, but if the cost of living is surging at the same time, then any of those gains will be wiped out.”
Tax rises and wages
The Institute for Fiscal Studies has declared that under current government spending plans, the average household bill will need to increase by at least 3.6% a year.
But experts argue this is a minimum requirement and think bills may rise by 5% every year until 2024/25.
Meanwhile, a National Insurance hike of 1.25% is looming for millions of workers in April to fund a £12billion investment in health and social care – with the Chancellor refusing to rule out more tax rises.
Elsewhere, staffing pressures have led to pay rises, with some offering thousands of pounds in upfront bonuses in a bid to keep shelves stacked and businesses ticking along.
However, this extra cost will in turn have to be passed on to customers in higher prices as firms will have to cover their higher overheads. Either way, workers are unlikely to benefit if the cost of living is still rising higher than wages.
For those on the state pension, next April’s increase will be based on what inflation turns out to be this month.
It would have been much higher if the Tories had stuck to their triple lock manifesto pledge, as it would have risen in line with average pay.
The new basic state pension of £179.60 a week is expected to rise by 3.3% from April – in line with the predicted increase in the consumer prices index for September.
It will also apply to those born before April 1945 who get a weekly £137.60 that is then topped up to £177.10 by claiming pension credit.
But the predicted £308-a-year increase, is likely to be more than swallowed up by a soaring cost of living – which may work out at more than £458 a year. In real terms, pensioners could be £150 a year worse off.
Savings and mortgages
Rising inflation at a time when interest rates are at record lows is bad news – your money will not have the same buying power when you withdraw it as it did when you put it away.
Put very simply, if you put away £100 last year, it would need to be worth £103.20 to have the same value in real terms. The best one-year account currently pays 1.5%, so your savings would be worth £101.50.
If high levels of inflation stay for longer than anticipated, the Bank may raise interest rates, which would be good news for those with cash on deposit.
This means mortgages would become more expensive, but savers should get more out of their money. If you’re a homeowner, now is a good time to make sure you’re on the lowest fixed deal possible.