Energy prices are on the decline as a result of the recent agreement between the US and Iran, according to financial expert Martin Lewis. Lewis shared his optimism earlier this week, indicating that prices could soon drop, offering a glimmer of hope for financially strained UK households.
The pact between the US and Iran to de-escalate tensions and reopen the vital Strait of Hormuz has triggered a decrease in oil and natural gas prices, leading to a reduction in energy costs. Brent crude prices have fallen by about $7 per barrel, with UK natural gas prices down by approximately 14 percent.
Lewis confirmed that fixed energy deals are now around 5 percent cheaper, signaling a positive trend for consumers. However, he cautioned that substantial reductions in energy prices may not be imminent, especially with the upcoming price cap review from October to December.
The next price cap update is scheduled for August 26 by the energy regulatory authority Ofgem. Around 60 percent of households in England, Scotland, and Wales are on a standard variable tariff, subject to the price cap regulations.
The current energy price cap is set to rise by 13 percent on July 1, translating to an annual cost of £1,862 for a typical household on direct debit. Despite the recent price cap increase, Lewis warned that costs could climb further, emphasizing the impact of global events on energy prices.
Lewis attributed the drop in natural gas prices to the US-Iran agreement, highlighting the influence of wholesale prices on UK energy bills. While there is potential for slightly cheaper fixed tariffs in the near future, he cautioned that the October price cap might still see a significant increase.
Regarding the anticipated rise in the price cap, Lewis explained that the adjustment is time-lagged, reflecting the delayed impact of market changes. This slow adjustment mechanism indicates that price fluctuations are gradual in response to external factors.