The British cap on energy prices will rise by 4% due to the Iran war.

The majority of British households will see their energy costs?rise in October, after the energy?regulator?Ofgem announced an increase of 4% in its domestic price caps as wholesale prices are pushed up by the war in Iran.

The increase will be a major blow to Andy Burnham who pledged to reduce cost of living pressures. It also more than cancels out the measures that he announced in December to lower tax on electricity bills.

High international?gas costs continue to drive up energy prices in the UK. "We welcome the government's decision to remove VAT from electricity bills. Without this, customers would have had even higher costs during winter." said Neil Kenward of Ofgem, director general for markets.

Around 22 million households with variable tariffs will be affected by the increase. The price cap covers around 65% customers.

THE PRICES OF WHOLESALE ENERGY HAVE SOARED

Benchmark wholesale British Gas?prices? have more than doubled ever since the U.S. started military action against Iran, on February 28. This has severely curtailed shipping through the Strait of Hormuz - the transit route of a fifth of liquefied gas in the world.

Ofgem’s quarterly price cap is largely driven by wholesale costs. It limits the amount that suppliers can charge consumers and also reflects policy and network costs.

The British energy minister stated that consumers will be worried about the cost of bills during winter.

Miatta Fahnbulleh, in a press release, said: "We'll keep exploring what else we can do to help protect families from unaffordable costs."

The removal of the VAT from electricity has prevented the cap to increase by another PS45. In April, the government shifted a few levies in order to reduce an average bill by around PS150.

WORSE IS TO COME

Analysts predict that wholesale energy prices will continue to increase as long as there is no end in sight to the conflict between the U.S.

Analysts at Cornwall Insight predict that the cap at wholesale prices could increase a further 9% to PS 1,872 in January.

Craig Lowrey of Cornwall Insight, principal consultant, said that even if the conflict ended, there would be lower stock levels going into winter, as demand rises, which means bills will likely fall in January.

(source: Reuters)