UK Energy Price Cap Set to Rise Despite VAT Cut

The United Kingdom's energy regulator, Ofgem, is set to raise its domestic price cap for the October-December 2026 period. According to a forecast by consultancy Cornwall Insight, the maximum price charged per unit of electricity and gas consumed will increase.

This rise comes despite Prime Minister Andy Burnham's VAT cut on domestic electricity bills, aimed at reducing household costs before winter. However, Cornwall Insight attributes the offsetting factor to rising wholesale gas prices due to international market pressure.

The consultancy blames ongoing conflicts in the Middle East for disrupting global liquefied natural gas (LNG) supply and pushing up European operators' prices. A summer heatwave across Europe has also contributed to increased demand for air-conditioning-driven power generation, further exacerbating the issue.

Ofgem's revised calculation method for Typical Domestic Consumption Values (TDCV), which assumes lower average annual household consumption, may produce artificially low bill amounts despite rising unit rates. Craig Lowrey from Cornwall Insight emphasizes that the UK's structural dependence on natural gas imports is behind bill volatility.