Barclays has slashed its target price for shares in Centrica and SSE, in light of political pressure to keep energy bills down.

It pegged Centrica down 25 per cent since its last report, to £2.85 a share and SSE down 34 per cent to £12.00. On Tuesday, they closed at £3.27 and £13.49 respectively.

Analysts at the bank said a squeeze on retail profit margins “looks inevitable”. Energy companies face cost increases of around £40 a household ahead of next winter but it is “implausible” that government will tolerate further price rises.

They forecast more negative headlines for energy firms, with Ofgem’s new chief executive, who starts in March, likely to act tough on the industry.

In the longer term, they said the utilities’ cherished goal of a 5-6 per cent margin looked “unlikely”, with 2-4 per cent typical in comparable sectors.

If Labour gets in at the next election and carries out its threatened energy tariff freeze, Barclays said “the financial repercussions could be severe”.

Barclays recommended power generators Drax, Infinis and Pennon as a better bet.