The Brief: With household energy bills’ imminent 80% hike next month, Liz Truss’ bold proposal to cap annual average power costs at £1,971 for UK households is warmly welcomed by inflation-burdened consumers. The move is expected to tame the country’s surging inflation, which is expected to rise above 20% next year if left unchecked. However, energy costs are not anticipated to normalise any time soon, which could present another financial burden for the state if the cap is extended in 2023. Russia has further reiterated its stance to cut off its gas supplies to Europe while the UK has since not imported fuel from Russia in June.
Why It Matters: The financial strain brought by surging energy prices in the country has brought headline inflation to excessive levels in more than 40 years. The October price hike will be less than £1,000, however, had it not been for Truss’ energy cap response. This does not deny the fact that a typical household energy bill will still be higher by around £500 that will further accelerate the gap between household costs and incomes even with additional government support.
Finanze® Foresights: Truss’ energy price freeze only has limited impact on averting a recession, but we expect the price cap to be just a preliminary solution before the government introduces market-wide reforms to help bring costs down using alternative energy sources. For now, as more consumers are forced to prioritise energy spending over other necessities in winter, low-income households, especially those on prepaid energy metres, will continue to feel the pain of the price hikes.
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