Will gas and electricity bills fall in 2026? Latest energy price forecast
The new price cap means millions of households will pay 13% more for their energy this summer due to the Iran war. Where will prices go next?
Energy prices are set to rise for millions of UK households in July, due to conflict in the Middle East.
The US-Iran war has led to a major disruption in the global supply of oil and gas since 28 February, with higher wholesale prices feeding into higher costs for households and businesses in the UK.
The current Ofgem energy price cap was set before the conflict escalated, protecting households from the worst of the price rises, but the Q3 cap will come in on 1 July, when it will rise by around 13%.
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Where are energy prices now?
The price cap fell by 7% on 1 April, bringing the current average annual energy bill for a dual-fuel household paying for their energy by direct debit to £1,641.
Note that the cap is a limit on unit prices, not your total bill, so your actual bill can be higher or lower than this depending on how much energy you consume.
The fall in energy bills came after the government removed some levies for environmental schemes from household bills. They will be funded through general taxation instead.
The government said the majority of households in the UK are benefitting from this cut, which it says is worth around £150.
The scheme helped bills fall despite an overall increase to the cost of servicing the UK’s energy infrastructure that was set to raise bills by around £57 per year had the government not stepped in.
But the US-Iran conflict means these savings are going to be short-lived.
Where will energy prices go in July?
The energy price cap will rise by 13% in July, bringing the average annual energy bill for a dual-fuel household (paying by direct debit) £1,862 per year – £221 more than the current price cap.
The hike will come into effect on 1 July and last until 30 September when the next price cap comes in.
Wholesale energy prices, which account for over 40% of the price cap, have surged since the beginning of the US-Iran war on 28 February.
The war has damaged energy infrastructure in the Gulf and led to the closing of the Strait of Hormuz, a vital waterway between Iran and Oman through which 20% of the world’s oil and gas is transported.
While the price cap will rise, households will be shielded from the worst of it as people tend to use less energy for things like heating during the summer months.
Where will energy prices go in autumn?
Energy regulator Ofgem will confirm the final price cap of the year, covering the October to December period, by 26 August. It is expected to announce an increase in prices.
Cornwall Insight, an energy consultancy well-regarded for the accuracy of its price cap predictions, expects the October price cap to rise by 2% to £1,899 per year – an increase of £27 compared to the July cap and £248 on the current April cap.
Their forecast is so high because of the same economic consequences of the Iran war that led to a hike in July.
Craig Lowrey, principal consultant at Cornwall Insight, said the October rise may be even more difficult for households than the July hike as it will coincide with people turning their heating back on for the winter.
He said: “A lot of people assume that if the conflict in the Middle East ended tomorrow, prices would return to their pre-conflict levels fairly quickly. However, that may be overly optimistic. The damage to infrastructure, the disruption to supply chains and the erosion of market confidence will not unwind overnight, and the impacts could be felt in bills for longer than many expect.
“That uncertainty makes the outlook for October particularly hard to call. We are only days into the three month time period Ofgem uses to set the wholesale element of the October cap, so things can and likely will shift, but households should not be banking on lower bills later in the year.”
Lowrey added that the government is under increasing pressure to introduce some support for households feeling the squeeze.
“For a lot of people this is not some abstract economic question, it is a decision about how warm they can afford to keep their home,” he said.
"What we do know is while some form of short-term support will be needed, without a longer-term move away from energy imports, whose prices can shift dramatically, we are going to keep having this conversation."
What do other forecasters say?
Most forecasters agree that energy prices are set to rise in July and beyond.
Economists at the Bank of England (BoE) expect household energy prices to increase in the summer when the July price cap kicks in, helping push inflation to 3.6% or 3.7% by the end of 2026.
The BoE used these forecasts to help inform its decision to hold interest rates at 3.75% at the most recent meeting of ratesetters at the Monetary Policy Committee in April.
EDF Energy expects the annual price cap will rise by £81 on 1 October to £1,903. They also anticipate a small rise to £1,912 per year in January 2027 before bills marginally fall to £1,890 from April 2027.
Meanwhile, British Gas expects the price cap to rise to £1,920 on 1 October, £1,925 on 1 January 2027, and £1,915 on 1 April 2027.
How does Ofgem calculate the price cap?
Ofgem calculates the price cap by observing the average wholesale price of energy over a three-month period and then working out an average.
This average is then used to set the next price cap which is in place for three months. This means there is a delay between current wholesale prices and the price we pay for our energy.
How to get help with paying your energy bills
If you’re struggling to afford your energy bills, your energy supplier may offer support with hardship grants. Octopus Energy has Octo Assist and British Gas has the British Gas Energy Trust.
You may be able to get a repayment holiday. This is where you ask your supplier to pause your repayments for a short amount of time to give you some breathing space.
Another option is to agree to an affordable payment plan. You will pay fixed amounts over a set period of time, which will cover what you owe plus an amount for your current use.
If you are on benefits, you might be able to repay your debt directly from your benefits through the Fuel Direct Scheme.
According to Citizens Advice, the Fuel Direct Scheme can be a good option if you can’t agree on a plan to pay back your debt, and it’s usually better than getting a prepayment meter.
Additionally, some government schemes give some households money towards paying their energy bills.
The Warm Home Discount is offered to households in receipt of some means-tested benefits who use participating energy suppliers and provides £150 of credit that is automatically paid towards your energy bill. It is applied during the winter.
Meanwhile, pensioners with an income of £35,000 or less could be eligible for the Winter Fuel Payment, which is worth up to £300 each winter.
As it becomes increasingly likely that the Iran war will raise energy prices, chancellor Rachel Reeves has said she is looking into the possibility of providing government support in the autumn.
If government support is given, it would be specifically targeted “for those who need it most”, the chancellor said in an interview with the BBC on 1 April.
To help you keep energy bills low, we have gathered some top tips in our article looking at 14 ways to reduce your energy costs.
