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Price cap could reach £3,363 for Q1 2023 as volatility in gas market continues

Cornwall Insight's prediction for Q1 has grown by £360 over the last month. Image: Getty.

Cornwall Insight's prediction for Q1 has grown by £360 over the last month. Image: Getty.

As volatility in the international gas market continues, the price cap is now set to hit £3,363 for Q1 2023.

In its latest estimates, Cornwall Insight has raised its expectation for the next two Default Tariff Cap periods. For Q4, its prediction now sits at £3,244 a year, up from its prediction in June of £2,980. While its expectations for the first three months of 2023 has jumped by £360 from its £3,003 prediction last month.

It comes amid continued uncertainty with regards to Russia’s gas flows into continental Europe, with reductions in gas deliveries to Germany, Italy and Austria, among others over the last couple of months.

Additionally, there have been concerns over a halted strike by Norwegian gas workers, which further increased volatility in the market.

“As the energy market continues to grapple with global political and economic uncertainty, the corresponding high wholesale prices, and the UK’s continued reliance on energy imports has once again seen predictions for the domestic consumer Default Tariff Cap rise to what are even more unaffordable levels,” said Dr Craig Lowrey, principal consultant at Cornwall Insight.

“There is always some hope that the market will stabilise and retreat in time for the setting of the January cap. However, with the announcement of the October cap only a month away, the high wholesale prices are already being “baked in” to the figure, with little hope of relief from the predicted high energy bills.”

This predicted jump in the price cap follows it jumping by 54% at the beginning of April, to £1,971, following gas prices surging over the end of 2021 and into 2022. The significant increase in energy bills already threatens to push 6.3 million households into fuel stress.

Cornwall Insight’s predictions do not include support measures from the government, with households set to receive £400 in October to help them manage the increased bills through the Energy Bills Rebate. This – along with support in the form of a £150 council tax rebate and a discretionary fund – were initially announced by former Chancellor Rishi Sunak in February.

In its initial form, the Rebate was a £200 repayable loan, but it was doubled and the need to pay back the money removed in May when the Energy Profits Levy – a windfall tax of 25% on oil and gas producers – was unveiled as the impact and extent of the volatile international gas market became increasingly clear.

It is possible, Cornwall Insight noted, that the cap level for Q1 2023 onwards could fall if the wholesale market retreats. With the Q4 2022 price cap set to be announced in August however, it is unlikely to see any significant decrease from these predictions.

“Ofgem are continually reviewing the cap and there are a raft of consultations and potential reforms which could impact these forecasts. However, as it stands, energy consumers are facing the prospect of a very expensive winter,” added Lowrey.

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