(Bloomberg) -- Britain's cost of living crisis may not turn out to be as bad as feared after a sharp decline in the cost of natural gas in wholesale markets.
Simon French, chief economist at Panmure Gordon, has calculated that on current market prices the increase in household energy bills when the regulated cap resets in October will be around 15%, far lower than forecasts for a 50% jump.
Ofgem's tariff cap rises 54% to a record 1,971 pounds ($2,610) from the start of April. The spike in gas prices following Russia's invasion of Ukraine prompted warnings of another 50% increase to 3,000 pounds at the next six-month review.
Gas prices are now half of the peak price, thought still at least five times higher than the average for this time of year. For British households, that boosts the cost of home heating and the price of electricity, much of which is generated with gas turbines.
French calculated that the current metrics point to a 15% increase in utility bills in October, in line with the Bank of England's central expectation.
That would take the annual bill to 2,270 pounds -- about 700 pounds less than the most alarming projections but still 300 pounds higher than April's record level.
French said his exercise was not so much a prediction as an illustration of how volatile the energy market is at the moment.
“This is backdrop to policy intervention: a very fast moving target,” he said.
The prospect of 3,000 pound energy bills later this year has fueled calls for the Treasury to offer further immediate assistance for households.
Chancellor of the Exchequer Rishi Sunak has already provided 350 pounds of support for almost every household to help with the 54% increase in bills in April. He's likely to unveil more measures on Wednesday.
Martin Young, a senior analyst at Investec who first calculated the 3,000 pound estimate, has revised it down a little to 2,840 pounds.
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