Average annual fuel bill to fall 12% to £1,690 under price cap, but ‘6m households trapped in fuel poverty’ – business live

In other news, the German economy shrank by 0.3% in the fourth quarter compared with the previous three months, hit by a slump in investment.

This is unchanged from preliminary estimates, the statistics office Destatis said. The decline came after Europe’s biggest economy stalled in the third quarter.

Household expenditure increased by 0.2% quarter-on-quarter, while investment fell, by 1.7% in construction and by 3.5% in machinery and equipment. Trade was also a drag, with exports of goods and services down 1.6%.

On a brighter note, the production of motor vehicles and trailers increased, bucking a declining trend across the manufacturing sector.

Economic journalist Holger Zschäpitz tweeted:

Ofgem isn’t just lowering the price cap, which translates into lower energy bills in Great Britain as wholesale costs have fallen.

Among other measures, households on prepayment meters will no longer pay a higher standing charge than those on direct debit or standard credit. This means metered consumers will save about £49 annually, while direct debit customers will pay £10 more each year.

There is also a temporary additional payment to those who are struggling. My colleague Alex Lawson explains:

The regulator said it had adjusted the calculation of the cap to allow a temporary additional payment of £28 a year to make sure suppliers had “sufficient funds to support customers who are struggling”.

The charge will be added to the bills of customers who pay by direct debit and not those on prepayment meters. It will be partly offset by the end of an £11 a year charge that was added to cover debts related to the pandemic.

Tumbling UK energy bills will help take headline inflation below 1.5% in June, and make a summer interest rate cut possible, says James Smith, developed markets economist at ING. He is predicting the first rate reduction in August.

UK energy prices will fall by 12% in April and it’s likely the regulator will lower the price cap again in July. That’s set to take headline inflation below 2% in April and we think it will stay below the Bank of England’s target for much – if not all – of 2024. That should help unlock a summer rate cut, if coupled with progress on services inflation and wage growth.

He thinks these factors will push headline inflation below the Bank of England’s 2% target in April to 1.9%, and it could go as low as 1.4% in June. Household energy alone will be shaving 1.3 percentage points off headline CPI during the second quarter, but by the end of the second quarter, much lower food and core goods inflation will make a material difference, too.

So what does this all mean for the prospect of rate cuts? Bank of England Governor Andrew Bailey caught the headlines this week by emphasising that inflation doesn’t need to be back to target for the Bank to cut rates. That obviously shouldn’t be taken literally given what headline CPI is likely to do in the second quarter, and what the Bank is really wanting to see is greater progress on services inflation and private-sector wage growth over the next few months.

The Bank is forecasting services CPI to fall from 6.5% to 4.9% in June, something we broadly agree with, and we expect to see further gradual downward pressure through the summer. A lot of this near-term stickiness is down to rental inflation, which still appears to be intensifying, as well as the impact of annual “CPI plus” index-linked price rises for things like phone contracts and the internet.

But dig a little deeper, and the news does seem to be slowly improving. If we look at catering for instance, which we think is a decent gauge of genuine domestically-generated, persistent inflation in the services basket, momentum has been slowing for several months. We think this is in part down to the lagged effects of the fall in natural gas prices, which when they rose originally, had put huge upward pressure on costs in an area of the economy with a high concentration of smaller businesses.

Good morning, and welcome to our rolling coverage of business, the financial markets and the economy.

The average annual dual fuel energy bill in in Great Britain will fall by 12% to £1,690 from 1 April, under a new price cap announced by the regulator Ofgem.

The price cap, which sets a maximum rate per unit that can be charged to customers for their energy use, will fall by 12.3% on the previous quarter from 1 April to 30 June. For an average household paying by direct debit for dual fuel, this equates to £1,690, a drop of £238 over the course of a year – saving around £20 a month.

Jonathan Brearley, Ofgem’s chief executive, said:

This is good news to see the price cap drop to its lowest level in more than two years – and to see energy bills for the average household drop by £690 since the peak of the crisis – but there are still big issues that we must tackle head-on to ensure we build a system that’s more resilient for the long term and fairer to customers.

That’s why we are levelising standing charges to end the inequity of people with prepayment meters, many of whom are vulnerable and struggling, being charged more up-front for their energy than other customers.

We also need to address the risk posed by stubbornly high levels of debt in the system, so we must introduce a temporary payment to help prevent an unsustainable situation leading to higher bills in the future. We’ll be stepping back to look at issues surrounding debt and affordability across market for struggling consumers, which we’ll be announcing soon.

Campaigners say this won’t stop 6m households from being trapped in fuel poverty. The charity National Energy Action says the typical bill is is still more than £400 a year more than it was in October 2021, the beginning of the energy crisis,, when 4.5 million households were in fuel poverty.

Adam Scorer, chief executive of the fuel poverty charity, said:

This is, of course, good news – any fall in energy bills is welcome. However, the drop coming in April still leaves bills significantly higher than they were before the energy crisis began. For two and a half years, household budgets have been stretched beyond breaking point by high energy bills.

Households in fuel poverty, on negative budgets and in impossible debt will see no chink of light this morning. The cost gap between where they are right now and escaping fuel poverty is getting wider. Whatever relief might be felt by this news, years of punishingly high energy bills will continue to take a heavy toll.

Stubbornly high prices are here for the foreseeable future – the government cannot simply ignore this as the new normal. We need a social tariff to provide permanent, deep protection for low-income households, we need action on debt to bring households out of this spiral, and we need long-term, significant investment in energy efficiency to make sure households are resilient against energy crises.

The Agenda