UK Energy Price Cap Rises 13% as Iran War Lifts Gas Costs
UK households are set to face another rise in energy bills from July, as global gas market volatility feeds directly into domestic energy costs. Ofgem has confirmed that the energy price cap for the period from 1 July to 30 September 2026 will rise by 13%, taking the typical annual dual fuel bill for a household paying by Direct Debit to £1,862, up from £1,641 in the April to June period. The increase is equivalent to around £221 a year, or about £18 a month, for a typical household.
Price Cap Rises to £1,862
The price cap sets the maximum unit rate and standing charge that energy suppliers can charge customers on default tariffs. It does not cap the total bill, which still depends on consumption, location, meter type and payment method. Ofgem reviews the cap every three months, meaning shifts in wholesale energy prices are gradually transmitted into household bills.
For Direct Debit customers in England, Scotland and Wales, the average electricity unit rate will rise to 26.11p per kWh from July, compared with 24.67p per kWh in the previous quarter. The average gas unit rate will rise more sharply to 7.33p per kWh, up from 5.74p per kWh. Average standing charges remain broadly stable at 57.19p per day for electricity and 29.04p per day for gas.
Gas Prices Drive the Increase
The rise is primarily being driven by higher wholesale gas prices linked to the conflict in the Middle East and disruption risks around key energy shipping routes. Gas remains central to the UK’s household energy system, both through direct heating demand and through its role in electricity pricing. As a result, changes in international gas markets continue to have a direct effect on domestic bills.
The increase in gas unit rates is particularly important because household heating demand is more exposed to gas price movements. Even as the electricity system continues to benefit from renewable generation, wholesale gas still plays a central role in setting marginal electricity prices, especially during periods of high demand or lower renewable output.
Geopolitical Risk and the Strait of Hormuz
The Strait of Hormuz remains one of the world’s most important energy chokepoints. According to the US Energy Information Administration, about 20% of global liquefied natural gas trade transited the Strait of Hormuz in 2024, primarily from Qatar. This makes disruption risk around the route highly relevant for global LNG markets and European gas prices.
For the UK, the impact is not only about direct imports. Gas is priced in a connected global market, and disruptions to LNG flows can increase competition between Europe and Asia for flexible cargoes. That can lift wholesale prices across regional hubs, which then feeds into Ofgem’s quarterly price cap calculation.
Policy Support Has Limits
The July increase also partially reverses the relief provided by earlier government action. From April 2026, the UK government said households would benefit from an average reduction of around £150 on energy bills, supported by changes to policy costs on bills.
However, the latest cap rise shows that policy measures can reduce part of the pressure, but they cannot fully shield households from global fuel price shocks. Wholesale energy costs remain one of the main drivers of the cap, alongside network costs, operating costs, VAT and policy related charges.
Household and Inflation Impact
The increase is expected to affect millions of households and adds pressure on household budgets at a time when affordability remains politically sensitive. Higher energy bills can also complicate the inflation outlook, as household energy costs feed into headline inflation and influence consumer spending capacity.
The direct monthly increase may appear manageable for some households, but the broader risk is cumulative. Energy bills remain elevated compared with pre crisis norms, and another rise heading into the second half of the year could increase financial stress, especially for lower income households and those with higher energy usage.
Outlook
The main takeaway is that the UK energy price shock is being transmitted directly from global gas markets into household bills. Even with policy support, households remain exposed to geopolitical supply disruptions because gas still plays a central role in electricity pricing and heating costs.
The risk is that elevated wholesale prices persist into winter, when consumption rises and affordability pressure becomes more severe. A faster de escalation in the Middle East could ease pressure on the next cap, but a prolonged disruption would keep bills, inflation risks and political pressure elevated.
Source note: Data used in this article is based on Ofgem, GOV.UK and the US Energy Information Administration.
