Stuart Mills, Assistant Professor of Economics at the University of Leeds, advised consumers to act now to avoid a 'nasty surprise' when bills rise. He said the conflict in the Gulf is the latest shock to the energy supply chain, and even if a peace deal sticks, higher prices will ripple through the market for months. Mills warned against 'present bias'—the tendency to focus on the present—and urged people to 'pay it forward' by increasing payments now to smooth out consumption. 'When higher bills bite, you'll be psychologically better off for it,' he said.
Martin Lewis also recommended switching away from price cap tariffs immediately. He wrote on X: 'GET OFF THE PRICE CAP IF YOU CAN. DON'T IGNORE THIS. There's a window of opportunity to lock in prices below the current Cap to avoid the huge hike coming in July.' Lewis noted that the most painful rises so far have been in heating oil and LPG, and that the decision is tough for those with enough oil left to wait it out.
The conflict in the Gulf is just the latest shock to the energy supply chain. And the tricky thing with supply chains is disruption takes time to be felt. Even if a peace deal sticks, consumers and businesses can still expect higher prices to ripple through the energy market for months.
The current price cap, set by Ofgem, stands at £1,641 a year for a typical household on a standard variable tariff. Analysts at Cornwall Insight predict the cap will climb to £1,801 in July as higher wholesale costs feed through. However, the cheapest fixed deal currently available—a 15-month fix from Fuse Energy at around £1,574 a year, according to Uswitch—would leave households around £225 better off compared with the projected July cap.
Fixed tariffs largely disappeared earlier this year when wholesale gas prices surged amid tensions involving Iran, but they are now returning. Around 29 deals are currently available, up from just 15 in early March. While some longer fixes are slightly above today's cap, they could prove cheaper overall if prices rise as forecast.
As such, think about the behavioural economics of what’s known as 'intertemporal choice' – your spending over time. People often excessively discount the future and focus on the present when choosing how to spend money. This is known as 'present bias'.
Ben Gallizzi of Uswitch said: 'Fixed energy tariff prices have been through a lot of turbulence in the past few weeks due to the Iran conflict, but the good news is we're finally seeing deals drop below the price cap again.' He added that households should assess their options, as the market remains volatile and there is no knowing how long cheaper deals will last. Wholesale prices have fallen back in recent weeks, and increases in the price cap may be lower than previously predicted, but the uncertainty persists.
Today, there are widespread expectations of higher energy prices, but (for now) they remain around pre-war prices. In the future – when the war is over – there will be widespread expectations of lower prices, but the current disruptions will still be rippling through the system. This mismatch between expectations and reality could leave people with a nasty surprise when their bill comes through.
So, pay it forward. Don’t fall into the trap of present bias. If you can, increase your energy bill payments today. Economists call this 'smoothing out' your consumption. When higher bills bite, you’ll be (psychologically) better off for it.
Fixed energy tariff prices have been through a lot of turbulence in the past few weeks due to the Iran conflict, but the good news is we’re finally seeing deals drop below the price cap again.
Households should be assessing their options. With predictions for July energy rates suggesting a staggering increase, this fixed deal would save the average household 15.5% against forecasted prices and would keep them protected through winter.
The market is still volatile, and there’s no knowing how long these cheaper deals will stick around for, so now is the time to act.