The Price Cap Rises 4% in October and 9% More in January

Ofgem has set the Default Tariff Cap at £1,723 for October to December, a rise of 4% on the £1,663 that covers July to September. In cash terms that is £60 on a typical annual bill.

The more consequential number is the one for January. Cornwall Insight, which forecasts the cap using Ofgem’s own methodology, expects a further 9% rise in the new year.

January Is the Larger Step

That forecast would put the typical annual bill at £1,872, some £149 above the October cap, according to the firm’s 26 August release.

Put the two together and the shape of the winter becomes clearer than either figure alone suggests. October adds £60. January is forecast to add £149 on top of that. The autumn increase, which is the one generating coverage now, is the smaller of the two moves.

The October cap already takes household bills to their highest per-unit level in three years. If the January forecast holds, that record is broken again ten weeks later.

The per-unit framing matters more than the annual one. A cap expressed as an annual figure invites the assumption that it is a bill, when what has actually risen is the rate charged for each kilowatt hour. A household that reduces consumption still faces the higher rate on everything it does use, which is why efficiency measures blunt these increases without cancelling them.

Why It Is Rising

Cornwall Insight attributes the pressure to wholesale markets remaining elevated as the conflict in the Middle East continues.

That is worth stating plainly because it locates the cause outside anything a UK supplier, regulator or household controls. The cap is a pass-through mechanism, not a price-setting one: when the wholesale component rises, the cap rises with it, and the regulator’s role is to police the margin and the non-wholesale costs rather than the underlying commodity.

It also means the January forecast is a forecast of a war’s effect on gas markets as much as an energy-policy projection, and should be read with the uncertainty that implies.

That uncertainty runs in both directions, which is easy to forget when the direction of travel has been upward for two consecutive quarters. Wholesale gas has repeatedly confounded medium-term forecasts in both directions since 2021, and a forecast published in August for a cap announced in late November is describing a market three months out.

What the Cap Actually Caps

A recurring misreading is worth clearing up, because it changes how a business should model this.

The cap does not limit a household’s bill. It limits the maximum a supplier can charge per unit of energy and for the daily standing charge, as Ofgem sets out. The more energy used, the higher the bill, capped unit rates or not. The headline figure is a typical-consumption illustration rather than a ceiling on what anyone pays.

It also varies. The level and the standing charge differ by where you live, how you pay, whether it is gas or electricity, and what meter you have. A single national number conceals all four of those.

One further wrinkle matters for anyone comparing across quarters. The January figures are quoted under Ofgem’s revised definition of average consumption, which took effect in July. Comparisons that straddle that change are not strictly like for like.

How the Forecast Is Built

Cornwall Insight applies Ofgem’s methodology rather than a proprietary model, which is why its numbers usually land close to the announcement.

That method works bottom-up. The wholesale cost of energy is one component. The rest is non-wholesale: network charges, low carbon levies and other policy costs, taxes, and an assumed level of margin per customer. The forecaster supplies current wholesale market prices and its own view of the non-wholesale elements, then applies both to the typical consumption values.

The firm is explicit that its figures are a national average, that regional numbers differ, and that it is independent with no influence over Ofgem’s decisions. That last point is a genuine distinction: the forecast is a prediction of a regulator’s arithmetic, not a lobbying position on it.

The practical value of that is a few weeks of warning. Because the inputs are public and the method is Ofgem’s own, a credible estimate of the January cap exists well before the announcement. For a business budgeting a winter, or a household deciding whether to fix, the forecast is the earliest usable signal even though it is not the decision.

The Business Read

The domestic cap does not apply to commercial supply, so a business does not pay £1,723. It still matters, for two reasons.

The first is demand. Households facing a £60 rise in October and a forecast £149 in January have that much less to spend elsewhere, and the timing lands across the trading period retail and hospitality depend on. Consumer-facing businesses were already navigating a market where warm weather and promotions were doing the lifting rather than underlying confidence.

The second is input costs. The same elevated wholesale market that drives the domestic cap drives commercial contracts, and those are frequently renewed on fixed terms with no cap at all. For an energy-intensive operation the domestic figure is a leading indicator of a renewal quote, not an irrelevance.

It compounds a cost base that is already being adjusted at the margins by policy, including the 20% business rates cut coming for 32,000 pubs and clubs. A rates reduction and an energy increase can land on the same premises in the same quarter.

Still Well Below the 2022 Peak

One piece of context keeps this in proportion, and it cuts against the alarm in the headline figures.

Despite being the highest per-unit level in three years, the October cap remains around 52% below the peak reached during the 2022 energy crisis, as reported in the Credit Protection Association’s briefing. Households and businesses are not returning to 2022 conditions, and nothing in the January forecast would take them there either.

What has changed is the trajectory. The period from 2023 onward was one of broadly falling caps from an extreme base, and the working assumption in a lot of budgeting was that energy costs would keep drifting down. Two consecutive increases, with a larger one forecast, ends that assumption without recreating the crisis.

That is an awkward middle position to plan around. It is not severe enough to trigger emergency support, and it is not benign enough to ignore in a cost base already absorbing higher employment costs.

What to Watch Before January

The January cap is announced in late November, and the forecast will move before then.

The variable to watch is the wholesale component, because it is the one doing the work in this forecast. A material easing in gas markets would pull the January number down; a further escalation would push it past £1,872. The non-wholesale elements, network charges and levies, move more slowly and are largely known in advance.

What the current position establishes is direction rather than magnitude. Two consecutive quarterly increases, with the second forecast to be more than twice the size of the first, is not a market that has found its level. Planning on the basis that October is the peak would be planning against the only forecast currently on the table.

About The Author

Will Lisil

Founder of MW3.biz, building technology that empowers creators and democratising access to digital tools.

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