£207 Off the Energy Price Cap, Not a Penny Off Your Bill

The energy price cap is about to look roughly £200 cheaper, and almost nobody's bill is going to fall. On 1 July, Ofgem changed what it counts as a typical household, cutting assumed annual use from 2,700 kWh of electricity to 2,500, and from 11,500 kWh of gas to 9,500. Multiply a smaller number by the same unit rates and you get a smaller headline figure. The rates haven't moved in your favour.

Run Cornwall Insight's October forecast both ways and the gap is hard to miss. On the new definition, the consultancy expects the October to December cap to land near £1,700 a year. On the old definition, the identical forecast works out at £1,906. The cap running now, set in July on the old basis, is £1,862. Strip out the accounting change and the direction of travel is up, by around 2%.

This is not a rounding quibble. Energy is once again doing the heavy lifting in Britain's inflation figures. Ofgem raised the cap 13% in July, a move economists calculate added about 0.44 percentage points to headline inflation by itself. Inflation had eased to 2.6% in June. Forecasters expect July's reading to come in near 2.9%, and the Bank of England thinks it touches 3.2% before the year ends.

How the energy price cap got redefined

Ofgem's reasoning is defensible: households genuinely use less gas and electricity than they did, thanks to insulation, heat pumps, LED lighting and simple thrift. Updating the assumption keeps the benchmark honest. The problem is presentational. That single change knocks about £207 off the advertised annual figure without touching a single tariff, which makes this October's number look like relief when it isn't. The cap has never been a limit on what you pay. It caps unit rates and standing charges. Use more, pay more.

Why your July bill jumped 13%

Wholesale costs did it. Higher oil and gas prices tied to conflict in the Middle East fed through to the tariffs Ofgem allows suppliers to charge, and the regulator's quarterly formula passed that on with a lag. Standing charges, which you pay whether you switch the boiler on or not, went along for the ride. That is why a low-usage household can see its bill climb even in a summer quarter when the heating has been off for months.

Where inflation goes from here

Three numbers frame the next twelve months, and they sit some distance apart.

The Bank's 3.2% ceiling and a 6-3 split

The Monetary Policy Committee held Bank Rate at 3.75% on 30 July, but the vote was 6-3, with three members pushing for 4%. That minority is the tell. Andrew Bailey said inflation had come down faster than expected while the Middle East conflict kept energy prices high and volatile. The Bank's own working assumption is a small October rise, from £1,663 to £1,680.

The scenario that gets you to 4.5%

The Bank has also sketched a worse path: further escalation in the Middle East pushing inflation to around 4.5% by the middle of 2027. That is not a forecast, it's a stress test, and it depends on oil markets nobody in Westminster controls. Beyond the peak, the central projection has inflation cooling to 2.7% in 2027 and 1.8% in 2028.

Why this is nothing like 2022

Perspective matters. UK inflation peaked at 11.1% in October 2022, and Citi analysts were publicly warning of 18% before the government stepped in with the Energy Price Guarantee. A 3.2% peak is a squeeze, not an emergency. The difference is that households entering this one have already spent four years burning through savings and buffers, so a smaller shock lands on thinner cushions.

The cost of living squeeze is set to return to the headlines — Thomas Pugh, chief economist at RSM UK, quoted by the Guardian

The £45 VAT cut and what it misses

Prime minister Andy Burnham used his first week in office to announce a set of "breathing space" measures, including a VAT cut on electricity worth roughly £45 a year per household from October, and a £2 bus fare cap in England. The Bank estimates the VAT change shaves about 0.1 percentage points off inflation in the second half of 2026. Useful, but £45 is a fraction of what July's 13% increase took out.

What to check before October

The practical window is short, and a few things are worth doing while the old rates still apply.

• Submit a meter reading on or close to 30 September, so the old unit rates can't be smeared across the new quarter.
• Compare any fixed deal against roughly £1,906 on the old consumption basis, not the £1,700 headline, or you'll misjudge it.
• Look at the standing charge, not just the pence per kWh, if you're a low user.
• Check eligibility for the Warm Home Discount and your supplier's Priority Services Register.
• Review your direct debit against actual usage rather than an estimate carried over from last winter.

Two dates decide how uncomfortable this autumn gets. The ONS publishes July's inflation figure within days, which will show whether the 13% cap rise landed as hard as economists expect. Ofgem confirms the October energy price cap in late August. If the real, like-for-like number comes in above £1,906, ignore the friendlier headline and budget for the winter you're actually going to get.