Martin Lewis predicts new cost of energy that will 'drop considerably' in July

The cost of energy will drop considerably in July in a move that will be doubtless welcomed by millions of households.

On Thursday, Ofgem will announce a new Energy Price Cap rate that will come into effect from 1 July.

Money saving expert Martin Lewis has predicted the cap, which sets the maximum price energy suppliers can charge consumers, will drop by around 17.5%.

The rate, which Ofgem confirmed will fall "considerable", is set to fall below the government's Energy Price Guarantee, which would mean people can expect lower bills.

Watch: Martin Lewis urges Jeremy Hunt to scrap energy price cap rise

Quizzing Ofgem's director for strategy and decarbonisation Neil Kenward on ITV's Good Morning Britain, Lewis said: "I'm predicting a drop of 17.5% when the price cap comes out in July. Am I about right?"

Kenward refused to give figures on its price cap forecast, but said: "I can be clear that the number will be down considerably on the £2,500 limit that applies at the moment for that average annual bill."

Lewis added: So the price cap will be dropping for the three months from July. I think it will be around somewhere between a 15% to 20% drop on a typical bill."

What is the energy price cap?

The Energy Price Cap on the amount suppliers in Britain can charge for energy was introduced by Ofgem in 1 January 2019 in an effort to protect households from expensive energy tariffs.

The price cap limits what you pay for gas and electricity and is based largely on wholesale energy prices.

It is not necessarily the maximum that can be charged but reflects typical usage levels, so customers using a lot of energy will have higher bills.

Read more: What is the energy price guarantee, and why is it being extended?

In response to soaring energy prices, the government introduced the Energy Price Guarantee, which provides a further discount for households by capping energy bills and essentially subsidising the cost of energy.

The Energy Price Guarantee has been standing at £2,500 and was set to rise to £3,000 in April, but in a u-turn the government postponed it until at least 30 June.