Energy Regulator Admits Rising Costs “Don’t Feel Fair” To Bill-Payers
The chief executive of energy regulator Ofgem has said he recognises soaring energy costs “don’t feel fair” following the confirmation that the price cap on prices will be adjusted more frequently.
Ofgem announced on Thursday that the energy price cap would now be updated every three months, rather than every six months, in response to global pressures on energy supply, meaning prices could jump up more often.
Consumers have been warned they face a “very challenging winter ahead”, with bills already predicted to reach £3,615 across the UK, according to analysis by energy consultant Cornwall Insight, made before Ofgem’s announcement.
The change is expected to add to existing concerns over the cost of living crisis, after the Bank of England introduced the largest interest rise in 27 years in a bid to tackle soaring inflation.
Speaking to BBC Radio 4’s Today programme, Ofgem chief executive Jonathan Brearley said he recognised that “everyone is worried” about the global rising cost in energy prices.
He added that they were witnessing an “unprecedented rise” and “huge volatility” in prices brought on by Russia’s invasion of Ukraine and increased demand in Asian markets.
“What we can do as a regulator is make sure that prices reflect the input costs or costs that companies need to pay. And we can also make sure that companies aren't making the big profits they used to make five or six years ago, but we do have to reflect those changes,” he continued.
“The reason why we're moving to a shorter time period is to make sure that this pricing regulation can adapt to the changes we're seeing in the market.”
He said he would “caution against too many predictions about how prices change”, and claimed that “when those prices come down, prices will come down equally quickly.
“I know that the changes we are seeing do not feel fair to anybody, but those are ultimately driven by the changes we're seeing globally in the gas price. And that's not a British problem, that's a global problem.”
The Bank of England also warned on Thursday that the UK economy was due to fall into recession later this year as a result of poor GDP growth and high energy prices.
In a bid to tackle rising inflation, which it predicted could peak at a 42-year high of 13%, the bank announced it would be raising interest rates from 1.25% to 1.75% — the sixth consecutive rise in interest rates, and the largest increase since 1995
"GDP growth in the United Kingdom is slowing. The latest rise in gas prices has led to another significant deterioration in the outlook for activity in the United Kingdom and the rest of Europe," the central bank said in a statement
"The United Kingdom is now projected to enter recession from the fourth quarter of this year."
It continued: "Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative."
Commenting on the economic forecast, Bank of England governor Andrew Bailey said he was very conscious that the poorest would be hit hardest by the inflation in the cost of essential goods and services, such as food and energy.
“If we don’t bring inflation back to target, given the huge scale of the energy shock, it’s going to get worse, and it will get worse precisely, I’m afraid, for those who are least well off in society," he said.
He also defended the independent status of the Bank of England in setting interest rates, after attorney general Suella Braverman suggested on Thursday morning that the current arrangements are not “fit for purpose”.
“Interest rates should have been raised a long time ago and the Bank of England has been too slow in this regard,” she told Sky News.
She suggested that Conservative party leadership hopeful Liz Truss, whom she is backing in the contest, had "made clear that she wants to review the mandate that the Bank of England has", including its "entire exclusionary independence over interest rates".
Speaking on Thursday afternoon, the bank's governor Bailey said that political pressures on the bank's Monetary Policy Committee — which sets interest rates — had been "very well managed" during his tenure.
"We’ve had many governments throughout that life, and that is the best way to manage it in my view. So no, I don’t really want to put emphasis on political pressures.
“One of the great virtues of our system is that the Bank of England takes these decisions independently, respecting, of course, the importance of the remit.”
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