Energy prices expected to fall in July - should you switch to a fixed energy tariff?

It is widely expected that energy prices will fall in 2023, with analysts at Cornwall Insight predicting prices to drop below the government’s Energy Price Guarantee (EPG) in July.

If this happens, it is likely that fixed energy deals will return to the market this summer with analysis from uSwitch suggesting they could start from £2,200 a year, based on typical use for an average household on a dual tariff.  

Cornwall Insight expects energy prices will be lower than the EPG when the Energy Price Cap, calculated by the energy regulator Ofgem, is set for July to September. It expects the Q3 cap could be £2,361 (based on average typical use).

Currently, under the EPG, a typical household energy bill is around £2,500 a year for average use and it will now continue until the end of June, as announced in the Spring Budget today. 

If the downward trajectory in gas prices continues and prices do drop significantly in July, then Cornwall Insight expects that the number of households switching energy suppliers in the second half of the year will skyrocket if competitive fixed deals return to the market. 

How much will fixed rate tariffs cost? 

If fixed deals return, households can expect to pay an average of £2,200 to £2,500 a year, based on typical use for an average household, according to analysis from uSwitch.

Wholesale prices have fallen by around 60% since 1 December 2022 and will filter through to energy prices household pay in July.

But, the big unknown here is what the government will do with the EPG - it is set to go up to £3,000 from 1 April, although it is widely expected that it will keep it at £2,500 (for average use) until July. And then in July, we will know whether the predictions for lower prices are correct; and if they are, this is likely to prompt suppliers to bring back fixed energy deals. 

USwitch found that 33% of consumers would prefer to have certainty and would switch to a fixed deal for it and 70% say they would like the option to switch to a fixed deal. 

When will fixed deal returns

Suppliers have said they are preparing for the possibility of bringing back fixed energy tariffs this summer, bringing back a competitive energy market.

Whether fixed rate tariffs actually make a comeback however is very much subject to wholesale market volatility.

Should the volatility return, then suppliers may consider it uneconomic or impractical to offer competitive tariffs later this year.

Kate Mulvany, senior consultant at Cornwall Insight, said: “The energy market is complex, making it difficult to predict the effects of policy changes on consumer behaviour and energy pricing. However, if suppliers' costs decrease and government-supported rates remain relatively high, it is likely we will see a significant revival in reasonably priced energy plans, with millions of households finally able to take advantage of the savings they have been missing out on for years.

But, she warned that there “are many variables still in play, and it is difficult to know how fast and how far energy bills will fall”.

“To see rising switching we are also relying on consumers engaging with an energy market which many are understandably wary of. It is possible some households may choose to stick with what they know instead of choosing cheaper options.”

Should you fix your energy tariff?

So far, there has been little incentive to switch suppliers as there have been no energy deals to switch to.

But if deals do make a comeback, you may consider switching to a fixed deal to shield yourself from future energy price rises or because you prefer to have certainty over your future bills. 

But, this would essentially be a gamble, as we do not yet know where energy prices could go. Energy prices may well continue to fall - in which case, waiting to see what happens could leave you paying less.

But, if volatility continues, then prices could shoot up, in which case a fixed deal could protect you from any future rises. 

Though we do not yet know what will happen with energy prices for sure - as so far we only have predictions of what to expect in the second half of this year.