Price cap declines but is expected to fall further still, says Cornwall Insight


Robert Buckley, head of retail and relationship development at Cornwall Insight, comments on Ofgem's announcement that the default price cap will decrease by £17 to £1,162 for six months effective from 1 April 2020.

Due to the mild winter the UK has experienced, it will have come as little surprise that the price cap has fallen yet again. As a result of the warm winter and a healthy supply of LNG, wholesale prices have fallen to a 13-month low. This substantial reduction in wholesale prices has offset any rise in network and policy costs causing the default tariff cap to lower. 

Reflecting these market conditions, competitive tariffs have fallen as well and although the thought of a price cap reduction may seem positive to some, the gap between the most expensive deals (usually standard variable tariffs) and the cheapest stood at £579 as of the 31 January 2020. 

If wholesale costs remain similar to what we have experienced in the winter, early forecasts predict another slight reduction to the cap. Ofgem will need to bear this in mind when they come to reassess the continuation of the default price cap later this year.