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(Bloomberg) — The UK’s cap on household energy bills is set to jump 13% this summer as the war in Iran drives up wholesale gas and power costs, adding to broader inflationary pressures weighing on the economy.
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The price cap, which limits what suppliers can charge a typical household, is forecast to rise to £1,850 ($2,479) a year from July, according to energy consultant Cornwall Insight Ltd. While the figures are estimates, they are typically close to the numbers announced by regulator Ofgem.
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Ofgem resets the cap every three months using wholesale fuel costs recorded during a set observation period. The next adjustment takes effect on July 1, and the window used to calculate the cap closed on Monday.
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The increase reflects the sharp gains in European energy markets since the Iran war began at the end of February and the effective closure of the Strait of Hormuz cut off oil and gas supplies from the Persian Gulf. In the UK, month-ahead gas futures have climbed about 50% since the conflict started. The equivalent power contract has risen by about a third.
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The jump in power bills will complicate the Bank of England’s inflation battle.
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Before the conflict, inflation had been expected to continue easing toward the BoE’s 2% target, paving the way for more interest-rate cuts. That outlook is looking out of reach as high energy prices threaten to trigger a new cost-of-living crisis.
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The energy shock also presents policymakers with a difficult trade-off between persistent inflation and weak economic growth. Consumers are already pulling back spending as they brace for higher utility bills, while businesses face rising expenses alongside soft demand.
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The government has not yet intervened in energy bills, but has said it’s weighing various options to help lower-income households cope with higher costs.
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