'Extraordinary' warning energy bills may go much higher than £3,000

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EMABRGOED TO 2200 MONDAY FEBRUARY 14 File photo dated 03/02/22/ of a homeowner turning down the temperature of a gas boiler in Basingstoke, Hampshire. People in Wales are to get extra help in the face of the cost-of-living crisis, with politicians in the devolved nation saying they are going
Energy bills could surpass £3,000 a year an expert has warned. (PA Images)

Energy bills could spiral way beyond £3,000 a year within the coming months, a senior economist has warned, amid fears the government has yet to grasp the scale of the problem.

Gas prices have rocketed in recent months, increasingly driven by concern over supplies from one of Europe's biggest suppliers - Russia.

While Russia only provides around 3% of the UK's gas, it supplies up to 40% of Europe's – meaning any disruption to this will have a knock-on effect on the wholesale cost for British consumers.

The average energy bill is currently around £1,200 a year. That is set to increase to around £1,900 from April - when the energy price cap increases - with experts issuing further grim warnings as to what may lie ahead.

Mike Brewer, chief economist at the Resolution Foundation think-tank, said on Wednesday: "The cost-of-living crisis is extraordinary given that we are not in a recession by when the economy is growing and yet household income is going to be shrinking," he said.

Read more: Food prices could soar by 10% and hit UK households harder than COVID lockdowns

He added: "The chancellor [should be] looking now what he's going to do about the energy price rise in October - because, if gas prices stay at their current rate, then we could be well beyond £3,000.

"So, ideally, he needs to think about that now - he's got six months warning of what could be an extremely damaging energy price rise.

"We don't need action now, but we do need to work to start now."

Chancellor of the Exchequer Rishi Sunak in Downing St, London. Picture date: Tuesday February 22, 2022. (Photo by Stefan Rousseau/PA Images via Getty Images)
Deputy chief executive and chief economist at the Resolution Foundation, Mike Brewer, called on the chancellor to start planning for spiralling energy bills. (Getty Images)

On bills hitting £3,000 a year Peter Smith, director of policy and advocacy at National Energy Action, said it would be a "profound change".

"It would mean that the cost of energy domestic energy per year has doubled in the space of a year," he said. "So massive, profound change - and wholly at a scale that I've never seen.

"I'm genuinely concerned that the the significance of that hasn't really been picked up by the UK government as yet."

Read more: Martin Lewis warns scale of soaring energy bills is dangerous and depressing

Last week, independent energy market analysts Cornwall Insights suggested the UK's typical annual energy bill could soar to £2,497 in October when the energy price cap is reviewed - and in February, Investec said costs could climb as high as £3,000.

The stark warnings come just a month after Ofgem announced the energy price cap would rise by £693 in April, up 54% – leaving the average UK household with an annual energy bill of £1,971 from 1 April.

Rishi Sunak announced an "Energy Bills Rebate" scheme to support households grappling with soaring energy bills in response, but the scheme was criticised for being partially repayable.

A baby is evacuated as people flee near a destroyed bridge to cross Irpin River as Russia's invasion on Ukraine continues, in Irpin outside Kyiv, Ukraine, March 9, 2022. REUTERS/Mikhail Palinchak
Russia's invasion of Ukraine is having a heavy impact on the cost-of-living crisis in the UK. (Reuters)

The war in Ukraine has exacerbated the potential impact on energy prices around the world.

“Britain has stepped out of a global pandemic and straight into a cost-of-living crisis," Adam Corlett, principal economist at the Resolution Foundation said.

“The tragic conflict in Ukraine is likely to further drive up the price of energy and other goods, and worsen the squeeze on incomes that families across Britain are facing.

"Inflation may even exceed the peak seen during the early 1990s, and household incomes are set for falls not seen outside of recessions."

Yesterday, the UK and US announced it was banning Russian oil while the EU said it would reduce its reliance on gas as Western powers stepped up their economic war on Moscow.

The ban latest will likely push up prices on global markets and add further pressure on consumer prices.

Watch: Keir Starmer calls for government U-turn on support for household energy bills as price hike set to bite