Martin Lewis has warned customers to be “careful” when it comes to fixed rate energy bill deals, and not “jump” on a fix because it costs less than what they’re paying right now. He explained that for those on a standard tariff, the rates being paid are governed by a cap.
The cap is currently set by the energy price guarantee, meaning typical households in Great Britain would pay around £2,500 a year for dual-fuel gas and electricity bills, which is in place until the end of June this year.
However, Ovo this week launched a one-year fix for existing customers that, at £2,275 a year based on typical dual-fuel use, undercuts the energy price guarantee.
For the last year, there have been no cheaper fixed deals to switch to under the energy price cap or the energy price guarantee.
However, with bills expected to fall in July and limited accessibility to the offer, MoneySavingExpert founder Martin Lewis shared his thoughts on the deal.
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Martin Lewis, founder of MoneySavingExpert, said: “People need to be very careful not to just jump on a fix because it costs less than they’re paying right now.
“If you’re on a standard tariff, the rates you pay are governed by a cap. That cap is currently set by the energy price guarantee, and will stay roughly stable until the end of June.
“After that, because wholesale rates – the rates energy firms pay – have dropped, it’s likely the price cap will drop, and on current predictions that means you’ll start paying 20 percent lower rates than now.
“That price is predicted to stay around that point until the end of the year, and into early 2024, though it changes every three months and the further ahead you get, the hazier the crystal ball gets.
“So based on those predictions, unless a fix is more than 15 percent cheaper than your current standard tariff – and this one isn’t – it’s unlikely to be cheaper over the year.
“Having said that, these are just predictions, things can change rapidly, and the one advantage of a fix is you get price certainty, so if you really value that, you may decide to fix even at a higher rate.
“As an aside, it’s worth knowing the Government has a limit in place on how much the cap can rise to in the worst-case scenario (a cap on the cap, if you like).
“So if wholesale rates were to explode again – which isn’t currently seen as likely – the maximum the rate could rise until April 2024 is 20 percent more than the current price.”
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The current Ofgem energy price cap, for the period April 1 to June 30, is £3,280 based on typical use, and this is what consumers would pay if the energy price guarantee were not in place.
According to forecasts by Cornwall Insight, for July to September 2023, the price cap could be £2,000, and £2,023 from October to December this year.
“A small rebound in the wholesale energy market has kept our forecasts over £2,000,” the firm said yesterday.
The energy price guarantee had been set to increase to £3,000 from April, but it has now been extended to remain at £2,500 for a further three months, to June.
