Energy Price Cap Falls on Paper, Rises on Your Bill

The energy price cap is about to hand British households a number that looks like relief and isn't. Ofgem must publish the October rate by 26 August, and forecasters expect it to land near £1,700 a year for a typical home — comfortably below the £1,862 figure that has been quoted everywhere since July. The catch sits in the small print: Ofgem has changed what it counts as a typical home.

Cornwall Insight, the consultancy the energy industry watches most closely, now forecasts £1,699.59 for October to December, down from an earlier call of £1,906.27. Two things drove that cut: the new government's decision to scrap the 5% VAT on household electricity from 1 October, and Ofgem recalculating the cap on the assumption that homes now use less gas and power than the old benchmark allowed. Strip out the redefinition and October is still roughly 2% dearer than today.

The timing is awkward. The Office for National Statistics publishes July's inflation figures on Wednesday, and the 13% cap rise that took effect last month is expected to drag the headline rate up to about 2.9%, from 2.6% in June. That would be the highest reading since March. In cash terms, July's increase added £221 to the annual bill for a typical household.

The 13% Rise That Lands in Wednesday's Figures

Energy is a blunt instrument in the inflation basket. Ellie Henderson at Investec reckons the cap rise on its own will add half a percentage point to July's reading; other estimates put the contribution nearer 0.44 points. Cheaper petrol and diesel should claw a little of that back. But the direction is set, and economists expect the headline rate to push above 3% before the year is out.

The cost of living squeeze is set to return to the headlines. — Thomas Pugh, RSM UK

Some of the pressure is imported. Wholesale gas and crude have been jumpy on the back of unrest in the Middle East, and Britain, which still prices much of its electricity off gas, feels that faster than most of its neighbours.

What the New Energy Price Cap Actually Costs

Two changes hit the same bill at the same moment, pulling in opposite directions. Untangling them is the difference between believing your energy got cheaper and understanding that it did not.

Why the Headline Number Shrinks Without Bills Falling

The energy price cap has never been a cap on your total bill. It limits the unit rate and the daily standing charge, then multiplies those by an assumed annual consumption to produce the round number the news reports. Lower the assumption — as Ofgem has now done — and the advertised total falls even when every unit you buy costs more. Heavy users will notice the gap immediately.

The £45 VAT Cut, and the Date It Runs Out

Prime Minister Andy Burnham's first big domestic move was to take VAT on household electricity from 5% to zero from 1 October. It is worth roughly £45 a year off the energy price cap and costs the Treasury around £850 million in 2026/27. It is also temporary: the zero rate runs for six months, to the end of the financial year in March. Unless it is extended, April puts that £45 straight back.

Will the Bank of England Put Rates Up?

This is the uncomfortable part. Bank Rate sits at 3.75%, and after months of talk about cuts, traders are now betting the other way. Markets put the chance of a rise at September's meeting at around one in four. Victoria Scholar at Interactive Investor expects one quarter-point increase before the year ends, taking Bank Rate to 4%. The Bank's own projection has inflation near 3.2% by December against a 2% target, and gloomier scenarios circulating among economists reach 4.5% by the middle of 2027.

For anyone remortgaging in the next year, that is the real sting. Energy-driven inflation squeezes a household once through the meter and, if the Bank responds, a second time through the monthly mortgage payment.

The July Number That Sets Next Year's Train Fares

One figure in Wednesday's release gets far less attention than it deserves. July's Retail Prices Index has traditionally anchored regulated rail fares the following January — season tickets, off-peak returns on many routes, anytime day singles. A hot RPI print now feeds straight into what commuters pay in 2027, months before anybody has to decide whether to renew.

What to Check Before the October Bills Land

There is no clever trick here, but a handful of things are genuinely worth doing over the next fortnight rather than in November.

• Take a meter reading close to 30 September, so units burned at the old rate are billed at the old rate.
• Review your direct debit. Suppliers often reset it upward the moment a new cap lands; if you are sitting in credit, you can ask for it back.
• Judge any fixed deal against the forecast October cap, not July's headline — a fix that looked expensive last month may look different now.
• Check eligibility for supplier hardship funds and government support before winter, not halfway through it.

Three dates are worth keeping. Wednesday, when the ONS confirms how much of the cap rise reached the shops. 26 August, when Ofgem publishes the real October figure and we find out whether Cornwall Insight called it. And the Bank's September decision, which will tell you whether this squeeze stays on your gas bill or moves across to your mortgage.