Energy prices have been the subject of intense discussion since late 2021, when their sudden and unexpected rise plunged millions of households and millions more businesses into financial disarray. What has followed could only be described as two years of economic crisis, with prices continually rising and the nation continually flirting with recession conditions.
Now, going into 2024, there are still major questions to be answered about the handling of the energy crisis, and what is next for households. Despite a recent relative dip in household energy costs, families look to be in for a nasty surprise in the new year – but how so? And what should you do in order to weather these ongoing financial difficulties as best you can?
The Cost-of-Living Context
The initial and meteoric rise of energy prices to meet Ofgem’s energy price cap in 2021 was one of a number of economic tragedies to befall the UK. Geopolitical instability was a partial factor in the rise of energy costs, but the UK’s formal departure from the EU was also a major precipitating event.
The cost-of-living crisis, in which prices inflated year-on-year – sometimes by more than 10% – continues to impact household finances, with everything from basic groceries to fuel and beyond having been negatively impacted. This is the backdrop against which energy pricing issues continue to plague households, with many unable to justify switching on their heating for more than an hour a day.
Energy Price Forecasts
In 2023, energy prices had begun to cool a little. Some energy suppliers were able to charge tariffs below the energy price cap, returning choice to the energy market from a consumer’s perspective. However, from the 1st January 2024, Ofgem are set to raise the energy price cap in order to account for another spike in wholesale gas prices.
This rise will see the typical household paying £94 more per year for their gas and electricity, but this average does not explain the lived reality for a majority of households – many of whom will see their energy bills spike by far more.
What Should You Do?
Meeting this new financial challenge is not necessarily easy, but does not need to be altogether difficult either. Financial preparedness pays dividends in any situation where household cost burdens increase, and this is just as true for energy costs as it is for unexpected repairs. If you have an emergency fund for such costs, you could dip into it to top up your energy payments; meanwhile, you can increase the amount you are putting away each month to ensure your savings are secure long-term.
Prioritising long-term financial security over this short-term increase is a great move, in that compound interest will make that money work harder for you than it would in your emergency fund. In the event of future changes, you will be in a better position to meet harsher price rises.