Energy bills are expected to fall to about £2,200 from July in a fillip for the government and households struggling with ballooning costs.
Leading energy consultancy Cornwall Insight has predicted that, excluding government subsidies, typical annual household energy bills will have fallen from £4,279 now to £3,208 from April, and then will ease to roughly £2,200 for the remainder of the year.
The forecasts are about £300 a year lower than its previous expectations because of the recent fall in wholesale gas costs.
Nevertheless, bills are set to remain far higher than the £1,138 energy price cap before the escalation of gas prices in late 2021, which was further exacerbated after Russia invaded Ukraine.
Mild weather in Europe in recent weeks has reduced gas demand and left reserves of gas in storage facilities in Europe at higher levels than previously expected, easing fears over a supply crunch and potential regular power cuts. But a cold snap this week is expected to put strains on the power network.
Although wholesale gas prices have fallen sharply in recent weeks, it will take months to feed into consumer bills as energy firms purchase their supplies in advance.
The predicted drop in bills is positive for the government, which is subsidising domestic and business energy bills.
The energy price guarantee aims to limit an average household’s bills to £2,500 until April and £3,000 for a further year after that.
It had been estimated that the scheme would cost the government as much as £42bn but this is now expected to be less than £37bn – and far lower than the estimated cost of between £72bn and £140bn when Liz Truss announced an earlier version of the plan.
“The lower cost of the scheme is likely to spark conversation on the additional energy bill support the government may now be able to offer households,” Cornwall Insight said.
There are increasing calls for government to coordinate a “social tariff” offering cheaper bills to low-income households, as well as improving protections for people on prepayment meters.
Bills were already expected to be higher from April after the end of the energy bill support scheme, which offered all households £400.
Cornwall Insight cautioned that wholesale gas markets have been volatile during the energy crisis and that policy needed to be “elastic … in such an environment”. Concerns remain over the situation next winter, with the prospect of greater competition from China for gas imports after the lifting of Covid restrictions and less Russian gas available in Europe.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “Positive gas storage and demand reductions in Europe mean the key winter period of concern is looking better.
“But, whilst today it is steady as she goes it is practically inevitable that forecasts will at some point change again as the market wanders about in search of its equilibrium, probably with lower peaks than last year, but not necessarily prices returning to what we define as normal range.”