UK households warned gas price spike could pile fresh pressure on energy bills
Renewed spikes in wholesale gas prices threaten winter budgets for UK households, with analysts warning of further energy bill increases and mortgage pressure.
UK households face renewed financial pressure on energy bills and mortgages as an ongoing gas price spike threatens winter budgets.
According to BBC reporting on gas price spikes, wholesale natural gas prices have surged to three-year highs. European nations delayed summer stockpiling due to high wholesale costs driven by the Iran war, gambling that the conflict would conclude before winter. Storage levels now sit significantly lower than usual for the time of year. European benchmark natural gas prices topped €75/MWh, reaching the highest level since late 2022. Simultaneously, UK natural gas prices topped 185p per therm, matching levels not seen since the tail end of the spike caused by Russia's invasion of Ukraine.
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The conflict has kept the vital Strait of Hormuz closed. Analysts fear the closure will persist, as roughly a fifth of the world's oil and liquefied natural gas passes through the waterway. Hamad Hussain, senior climate and commodities economist at Capital Economics, told the BBC that gas storage operators originally anticipated waiting a few months for the crisis to ease. With the closure extending significantly longer, Hussain warned that gas storage risks are tilted towards the upside and predicted prices would top €80 by the end of the year.
Higher wholesale costs feed directly into household bills by influencing Ofgem's price cap. While the energy price cap rose in July and increased by 4% in October to leave a typical household paying £1,723, analysts at Cornwall Insight forecast domestic energy prices could climb a further 9% in the new year. Dr Craig Lowrey, principal consultant at Cornwall Insight, told the BBC that fresh wholesale increases intensify pressure on January price cap forecasts, though he noted sufficient time remains for wholesale prices to fall.
The Department for Energy Security and Net Zero (DESNZ) stated that gas prices are determined on international markets. However, Chris O'Shea, boss of British Gas owner Centrica, warned on LinkedIn that the UK has almost no gas in storage for the coming winter and called for government support to expand the Rough storage facility in the North Sea. DESNZ responded that it remains open to discussing storage proposals provided they deliver value for money for taxpayers, while pointing to government pledges to cut VAT from energy bills and reduce overall reliance on natural gas.
Beyond energy bills, the conflict has rippled across personal finance sectors, affecting mortgages, savings, and fuel costs as detailed in BBC analysis of Iran war financial impacts. According to data from Moneyfacts, average fixed mortgage rates jumped significantly following the outbreak of hostilities before beginning to dip. The Bank of England estimates that about 53% of UK mortgage holders will see monthly payments rise over the next three years, with average monthly payments for those moving onto a new deal expected to rise by approximately £80.
Fuel costs have also experienced severe volatility. RAC data shows petrol reached a war peak of 159.53p a litre on 28 May, while diesel hit 191.54p a litre on 15 April. Rural communities relying on heating oil have faced immediate shocks, prompting Prime Minister Sir Keir Starmer to announce £53m in support for vulnerable users distributed via devolved authorities and local councils.
| Financial Metric | War Peak / Recent High | Subsequent Level / Estimate |
|---|---|---|
| European Benchmark Gas | Over €75/MWh | Forecast over €80/MWh by end of year |
| UK Natural Gas | Over 185p per therm | Highest since late 2022 |
| Average 2-Year Fixed Mortgage | 5.90% (12 April) | 5.61% (mid-June) |
| Average 5-Year Fixed Mortgage | 5.78% | 5.58% (mid-June) |
| Petrol (per litre) | 159.53p (28 May) | Just under 157p |
| Diesel (per litre) | 191.54p (15 April) | Just under 178p |
Economic forecasters have had to recalibrate expectations. Ángel Talavera, chief European economist at Oxford Economics, told the BBC that the situation presents a mixed picture. While wholesale gas prices remain lower than the crisis following Russia's invasion of Ukraine, households still face elevated bills. Talavera characterized the situation as serious but not catastrophic, warning that outcomes depend heavily on winter weather patterns and the timing of the reopening of the Strait of Hormuz.
Meanwhile, the Office for Budget Responsibility had initially forecast inflation to hover around the 2% target, but military and economic volatility has complicated projections. The Bank of England has held the Bank rate steady at 3.75% after meeting twice without cutting rates, signalling readiness to act if the conflict continues to fuel inflation over time.
What to watch next
- Winter weather patterns and potential El Niño impacts on energy demand across the UK.
- Developments regarding the reopening of the Strait of Hormuz, with Capital Economics anticipating disruptions to extend into early 2027.
- Regulator Ofgem announcements regarding future price cap adjustments for domestic energy consumers.
- Upcoming decisions from the Bank of England's rate-setting committee concerning interest rates.
