Ofgem raises October energy price cap 4%

Ofgem will increase the household energy price cap by 4% from October as higher international gas prices continue to feed through into UK bills and wider inflation pressures.

The regulator said the benchmark annualised bill for a typical household paying by direct debit for both gas and electricity will rise from £1,663 to £1,723 for the period from 1 October to 31 December. The £60 increase is equivalent to about £5 a month at typical consumption if the rate were sustained for a year.

The price cap limits the unit rates and standing charges suppliers can impose on domestic customers using standard variable tariffs. It does not cap a household’s total bill, which still varies with consumption, and it does not apply to commercial energy contracts.

Ofgem said wholesale prices had increased by 11% over the previous three months, with global gas markets remaining the dominant driver of the change.

Neil Kenward, Ofgem’s director general for markets, said: “High international gas prices are continuing to drive energy costs in the UK.”

The calculation also incorporates the government’s removal of VAT from domestic electricity bills. Ofgem said electricity bills would remain broadly stable despite higher wholesale prices, while the gas element of a typical bill would rise by around 8%. Without the VAT measure, the regulator estimates the headline cap would have been about £45 higher.

Around 35% of households are on fixed tariffs and will not be directly affected by the October cap increase while those deals remain in force. Ofgem said fixed tariffs were available below the new cap when it published the decision, although savings depend on consumption, contract terms, and future wholesale price movements.

The October increase follows a larger rise earlier in the year and extends the renewed upward pressure on household energy costs. Ofgem says the new cap remains 52% below the height of the 2022 energy crisis, although it is 7% higher than the corresponding period in 2025 after adjusting for inflation.

The regulatory change is aimed at households, but its wider economic effect extends into consumer spending and wage pressure. Higher essential bills can reduce disposable income available for retail, hospitality, leisure, and other discretionary purchases, while employees facing higher living costs may seek greater pay increases.

Commercial customers operate under different energy arrangements and are generally exposed through negotiated business contracts rather than the household cap. Many companies nevertheless buy from the same underlying wholesale markets, meaning sustained gas price increases can feed into contract renewals and hedging costs.

Energy-intensive manufacturers, hospitality operators, logistics companies, food producers, and businesses with large property estates are particularly sensitive to the direction of electricity and gas prices. The eventual impact depends on how far ahead they have purchased energy and when existing supply contracts expire.

Costs can also travel indirectly through supply chains. Higher prices for transport, manufacturing, refrigeration, warehousing, and building operation can raise the cost of goods and services even where the purchasing company has fixed its own energy price.

The Bank of England has identified higher energy prices as a source of uncertainty for inflation. The immediate effect of an imported energy shock differs from persistent domestic inflation, but policymakers monitor whether the increase subsequently affects wages and companies’ pricing decisions.

July CPI inflation rose to 2.9%, above the Bank’s 2% target. The October cap adds a known household cost increase later in the year, while the eventual direction of the January cap will depend heavily on wholesale gas markets during the coming months.

Those markets remain highly sensitive to geopolitical developments. The next price cap calculation could therefore move in either direction, but the October decision confirms that the energy shock is still working through UK costs rather than fading from them.