UK households are facing a huge increase to their bills in October when the energy price cap is next updated, leading many to look around for fixed-rate deals.
April’s price rises have already hit customers on variable tariffs hard, with bills increasing 54% on average. The autumn hike “will pile more pressure on to already struggling households”, said The Telegraph.
Money Saving Expert (MSE) founder Martin Lewis warned this week that “many should be taking action” because analysis suggests “the future looks even worse” than the current cost-of-living crisis.
To fix or not to fix
The next rise in the energy price cap could mean bills will “skyrocket again by an average 51%” this autumn, said The Money Edit, based on predictions from market research firm Cornwall Insight. This could get even worse with the price cap peaking at more than £3,000 in the first quarter of 2023, the firm has predicted. But “nothing is guaranteed”, said MSE’s Lewis.
With the energy market “extremely volatile” and “constantly changing”, whether or not to fix your energy prices is an “incredibly difficult question to answer”, said Good to Know.
A fixed-rate energy tariff protects households from fluctuations in energy prices by setting the price of energy per kilowatt hour for the entire period of the plan. Fixing your energy bills can help with monthly budgeting, and won’t suddenly leave you out of pocket.
‘The lucky ones’
If you’re already on a fixed plan, “you’re one of the lucky ones”, Good to Know said. These customers will retain the agreed fixed costs for the duration of their plan no matter how much the energy price cap rises by in October.
Sarah Broomfield, an energy policy expert at Uswitch.com, told the site that while fixed tariffs had “traditionally” offered the best value on the market, “this all changed” when the energy crisis began last year. Switching now doesn’t guarantee that fixing your bills will have the same cost benefits as it would under “normal market conditions”.
Increases in wholesale energy prices have meant that “it is untenable for suppliers to offer deals at the rates they had been”, Broomfield said, adding that “standard variable tariffs are the cheapest deals” right now, because of the current price cap.
Existing-customer deals
MSE’s Lewis said that there are “rarely” any open market fixed-rate options that are worth considering. The “top deals” are typically reserved for existing customers, and there are some suppliers including British Gas and EDF Energy offering fixed-rate tariffs that are worth weighing up.
Energy providers don’t typically publish details of “existing customers only” tariffs, so Lewis advised contacting firms or checking accounts online to determine whether you are eligible.
‘A gamble’
Fixing your energy bills, “especially right now, is a gamble”, said Good to Know. Starting a fixed-rate tariff will cost households more between now and October, but those who do make the switch could be in a better financial position when prices do increase. The real question is “do you pay more now, to hopefully save (or at least break even) later?”.
Martin Lewis said “some of this is crystal-ball gazing and averaging”, but his “best guess” would be that if you are offered a year’s fix at no more than 40% over your current price-capped tariff, “it’s worth considering” – though “it’s certainly not a slam dunk”.
Fixed-cost deals may be “starting to look more tempting”, but The Times’s George Nixon said that now is “probably not” the time to make the switch.
Households on a variable rate will have “cheaper energy” for the next four months than those on a fixed rate. But “keep an eye out for cheaper fixes as it gets closer to October”, said The Times Money Mentor.
