UK household energy bills are set to rise by a further 4% from October to their highest level since the summer of 2023, as the Iran war has tightened global gas supply and made gas restocking in Europe more difficult and expensive, energy consultancy Cornwall Insight said on Wednesday.

The consultancy expects Britain's energy regulator Ofgem to raise the price cap that energy providers can charge by 4% from October, with household bills climbing to their highest level since July 2023 on a unit-for-unit basis.

The UK has a so-called Energy Price Cap in place, which protects households from excessively high bills by capping the price that energy utility providers can pass on to them. The cap is a limit on what suppliers can charge domestic consumers per kilowatt hour of energy used. Introduced in 2019, the cap surged above £3,500 during Europe's 2022 energy crisis that followed Russia's invasion of Ukraine, prompting the government to step in and limit typical household bills.

Britain's vulnerability to such swings is structural: most UK homes rely on gas for heating, gas-fired power stations supply a significant share of the country's electricity, and the UK has been a net importer of gas since the mid-2000s as North Sea production has declined. Because the price cap is calculated largely from suppliers' wholesale energy costs, movements in international gas markets flow directly into household bills.

Ofgem, which sets the price cap on a quarterly basis, is expected to raise the annual cap to £1,729 ($2,344) in the October-December period, up from the current £1,663 ($2,254), according to projections from Cornwall Insight. The headline cap figure refers to the annual bill of a typical household, with actual charges varying by consumption.

UK energy bills have already jumped by 13% between July 1 and September 30, 2026, under the price cap that Ofgem set in May, as a result of higher wholesale gas prices amid the Middle East crisis.

Ofgem will announce next week the price cap for the October-December period, with further increases expected due to the continued crisis in LNG supply from the Middle East and higher gas prices in Europe and Asia. Because the cap is reset every quarter, the elevated winter wholesale prices will also feed into the subsequent cap decision covering the January-March period.

The projected increase “is being driven by ongoing uncertainty over the US-Iran conflict, with wholesale prices for the coming winter having risen to their highest level in almost four years,” Cornwall Insight said, adding that the gas supply crunch has been exacerbated by the numerous heatwaves Europe has had to endure this summer. European countries typically refill their gas storage over the summer months ahead of peak winter demand, so disruption to the restocking season leaves less of a buffer heading into the heating season.

The surge in energy bills drove UK inflation to 2.9% in July, the highest in four months and above the Bank of England's 2% target, statistics data showed on Wednesday, with analysts saying that this could be the beginning of a new inflation shock cycle.

By Tsvetana Paraskova for Oilprice.com