Energy shock starts to bite in Europe: UK household bills set for 'deeply unwelcome' 2-year high

Supply constraints sparked by the Iran war will drive household energy costs in the U.K. to their highest level in two years over the summer, the country's energy regulator said on Wednesday.

Government watchdog Ofgem announced its energy price cap would rise by 13% in July, with electricity prices increasing by around 5% and gas bills soaring 24%.

Ofgem's price cap limits how much households in the U.K. can be charged for energy utilities, and is reviewed every three months.

"Today's price change reflects continued volatility in global energy markets. This means higher wholesale gas prices, driven by ongoing conflict in the Middle East, is impacting the price we pay for energy," Ofgem CEO Tim Jarvis said in a statement on Wednesday.

The current price cap puts a typical household's gas and electricity bill at £1,641 ($2,206.94) a year. From July, that figure will rise by around 13.5% to £1,862 — its highest level since early 2024.

Households have reduced their energy usage in Britain, with Britons broadly using 7% less electricity and 17% less gas since Ofgem's last review, when it lowered the price cap by 7%. From July, the organization said, it will factor the drop in usage into its price cap figures.

Currently, it said, 40% of energy accounts across Britain are fixed-term contracts, meaning they will be shielded from July's price rises.

But Ofgem is expected to hike its price cap again in October.

Energy analysis agency Cornwall Insight forecasts that the price cap will rise to £1,899.44 in October under the existing framework. That would represent another 2% increase from the July price cap.

The U.K. is reliant on imported energy, making it vulnerable to global supply bottlenecks of oil and gas, and the resulting spikes in energy prices.

Since the outbreak of the Iran war and the effective closure of the Strait of Hormuz, a critical shipping route, Brent crude oil prices have surged by around 33.5%, while June gas futures sold on the Dutch TTF have jumped almost 50%. Although prices have cooled from their wartime highs, they remain elevated and volatile.

Ofgem noted on Wednesday that even after July's price increase, bills will remain well below their level at the height of the 2022 energy crisis that saw the government cap bills at £2,500 a year.

That move came after wholesale prices surged in the wake of European sanctions on Russia, a major supplier of energy to the region, following its full-scale invasion of Ukraine.

However, U.K. Energy Security Secretary Ed Miliband said in a post on X that the update from Ofgem was adding to the cost pressures faced by British households.

"The rise in the price cap because of a war we did not choose is deeply unwelcome news for households across the country," he said.

"We will continue to monitor the situation ahead of the winter and plan for all contingencies. In the immediate term it is essential to de-escalate this conflict to bring oil and gas prices down."

The U.K. isn't the only country in Europe feeling the impact of the Iran war-induced energy shock. Last month, Germany banned gas stations from raising pump prices more than once a day, while official data showed last week that energy prices in the euro zone jumped 10.8% in April from the previous year.