Analysts at Investec have lowered their forecast for the price cap for the next period beginning in April but said some form intervention is still needed to help those struggling with bills.
An unprecedented increase in wholesale gas prices over the second half of last year previously led multiple industry observers to predict that the price cap on default tariffs could rise to £2,000 or more – an increase of more than half over the current level of £1,277.
However, writing in a circular sent out on Monday (17 January), Investec senior analyst Martin Young said the firm has revised down its £2,000 estimate from last month to £1,907 for the summer period due to the easing of gas and electricity prices in the meantime. The new level of the price cap is scheduled to be announced by Ofgem on 7 February.
Young warned this would still represents a 49% jump compared to current levels, with higher increases likely for those currently on fixed tariffs. He also predicted that there would be a further increase to around £2,100 for the winter price cap period beginning in October.
“The implications for fuel poverty, discretionary spend and inflation remain, said Young. “It is clear that some political or regulatory intervention is needed, as a failure to act could spell trouble for a government already fighting many other fires.”
The circular said, despite reports some of these options have already been dismissed, cutting VAT, shifting policy costs to general taxation and spreading out the costs of supplier failures are potential mitigating tools that would arguably be “less regressive in nature”.
“Whatever the government elects to do, it is imperative that in engineering a solution for the here and now, it doesn’t merely defer the problem to another day, or worse still, create a new problem.
“Solutions have to be workable, not act as a disincentive to investment, and be consistent with the crucial part that energy has to play in delivering net zero,” Young added.