UK household energy bills will increase by 13.5% from 1 July, adding £221 to the average annual bill and bringing it to £1,862, according to energy regulator Ofgem. The rise, which is 79% higher than before the energy crisis began in winter 2020/21, is driven by higher wholesale costs that suppliers are passing through to consumers. The conflict in Iran has contributed to these wholesale price pressures, disrupting the Bank of England’s inflation target of 2% over the next five years, Ofgem noted.
Wholesale Cost Pass-Through
The increase applies to households on variable-rate tariffs, for whom the price cap directly reflects wholesale energy market movements. Ofgem’s quarterly cap adjustment is designed to track underlying wholesale costs, which have risen sharply due to geopolitical instability. The conflict in Iran, a major oil and gas producer, has introduced significant supply-side uncertainty, feeding into gas and electricity wholesale prices. This has scuppered the Bank of England's target of 2% inflation over the next five years, according to the source.
Geopolitical Supply Risk
The conflict in Iran represents a key supply-side risk for global energy markets. While the UK sources a portion of its gas from domestic production and via pipeline from Norway, global LNG and oil markets are interconnected. The disruption in Iran adds upward pressure to wholesale prices, which are subsequently passed through to end consumers. The magnitude of this pass-through is evident in the 13.5% quarter-on-quarter jump in household bills.
Household Demand Signal
The rising costs are impacting consumer sentiment and spending power. In Bacup, one of the most deprived areas in the Rossendale Valley according to 2025 indices of deprivation, residents at the ABD Centre expressed fear over affordability. Jules Pritchard, who runs an arts and crafts class there, said many pensioners are “surviving rather than living.” Alison Grant, 61, from Weir, said she is “very anxious and very worried” and described her smart meter as an “anxiety meter.” June Divine, who runs a weekly luncheon at the centre, said “everything has just rocketed.”
| Metric | Value |
|---|---|
| Average annual bill (new) | £1,862 |
| Increase in £ | £221 |
| Quarterly increase | 13.5% |
| Increase vs winter 2020/21 | 79% |
| Adults reporting higher cost of living (ONS) | 66% |
According to the Office for National Statistics, 66% of adults reported their cost of living had increased compared with a month ago, with the most commonly cited reasons being food shopping, fuel, and gas or electricity bills. This demand-side pressure is likely to curtail discretionary spending and could reduce overall energy consumption, though short-term price inelasticity may persist.
Policy Response
The government has taken steps to mitigate the impact, including freezing fuel duty, rail fares, and prescriptions, increasing the minimum wage, and cutting VAT on family activities and children’s meals this summer. Additionally, it extended the Warm Home Discount to around six million households and claims to have taken £150 off energy bills for the years ahead. A government representative stated that tackling the affordability crisis is its “number one priority.”
For commodity traders, the persistence of geopolitical risk from Iran and the ongoing pass-through of wholesale costs to consumers signal that energy price volatility may continue. The intersection of supply disruption (Iran) and demand concerns (reduced household capacity to pay) will influence forward curves and hedging strategies. Key data to watch include UK gas storage levels, LNG cargo flows, and monthly Ofgem updates on wholesale cost benchmarks.
