UK household energy bills are expected to rise by 13% in July, potentially marking the largest increase since 2023.

Impacted by the effect of the Middle East situation on Europe’s energy market, UK household energy bills will see the largest increase in nearly three years this summer, further intensifying economic inflationary pressure.

According to energy consultancy Cornwall Insight, the UK energy price cap will be raised to £1,850 per year starting in July, the largest single adjustment since 2023. This cap sets the maximum amount suppliers can charge a typical household. Although these figures are estimates, they generally closely match the numbers eventually announced by the regulator Ofgem.

Soaring energy costs have complicated the Bank of England’s (BoE) path to fighting inflation. Before the outbreak of the Middle East conflict, markets generally expected inflation to continue falling towards the 2% target, paving the way for interest rate cuts; but now the outlook for inflation returning to target has clearly deteriorated. Meanwhile, consumers expect to cut spending, and businesses are confronted with both rising costs and weak demand, placing further pressure on economic growth prospects.

Gas prices up 50%, UK household energy bills hit hard

This hike in the energy price cap is directly caused by the impact of the Middle East conflict on the European energy market. Since the outbreak of conflict at the end of February, disruption in the Strait of Hormuz, and interruptions to oil and gas supply in the Persian Gulf, European energy prices have soared rapidly. According to Bloomberg data, since the conflict began, the UK’s monthly natural gas futures prices have risen by about 50%, and electricity contract prices over the same period have increased by around one-third.

UK energy regulator Ofgem resets the price cap quarterly based on wholesale fuel costs. With the observation window for the July 1st adjustment closing this Monday, this round of increases is essentially locked in.

Faced with the pressure of rising energy bills, the UK government has not yet announced specific intervention measures but has stated it is evaluating various plans to help low-income households cope with higher energy spending. Chancellor Reeves said the government is making contingency plans for “various scenarios” that may arise from the Iran war.

Inflation versus growth dilemma, monetary policy room narrows

The shock to energy prices has put UK monetary policymakers in a dilemma: on one hand, persistently high energy costs could trigger a new wave of cost-of-living crises, pushing up inflation; on the other hand, early contraction in consumer spending and weak business demand mean economic growth risks are rising.

According to reports, Bank of England Chief Economist Pill stated that the strong price pressures from the Iran conflict support a rate hike. This stance clearly diverges from previous market expectations regarding the path of rate cuts, further increasing investor uncertainty about the direction of policy.

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