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UK Energy Price Cap to Rise 4% from October as Middle East Conflict Pushes Up Gas Costs

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UK Energy Price Cap to Rise 4% from October as Middle East Conflict Pushes Up Gas Costs

The UK's Office of Gas and Electricity Markets, or Ofgem, on Wednesday announced a 4% energy price cap increase in the fourth quarter, mainly driven by higher wholesale gas prices amid volatile global gas markets due to the ongoing war in the Middle East.

Based on the regulator's current typical domestic consumption values, the annual energy price cap for a typical household that uses electricity and gas and pays by direct debit will increase to 1,723 pounds sterling from 1,663 pounds, beginning Oct. 1.

Ofgem previously raised the price cap by 13% from July 1 to Sept. 30. With the latest increase, British households are facing the highest energy price cap level in three years this winter, according to BBC News and The Guardian.

Around 35% of households are on fixed tariffs and will not be impacted by the increase, Ofgem said in its release, adding that electricity bills will remain "broadly stable" for households as a result of the government's removal of value added tax from all domestic electricity bills.

"High international gas prices are continuing to drive energy costs in the UK. We welcome the Government's intervention to remove VAT from electricity bills, without which customers would have faced even higher costs this winter," said Neil Kenward, Ofgem's director general for markets.

The regulator noted that the price cap increase will see gas bills rise by 8%, while households that do not use gas will see a "much smaller increase" of less than 1%.

"Removing VAT from domestic electricity has softened the impact of the latest increase for already stretched household budgets. But more is needed for businesses as well, as high energy prices feed into wider costs," said Clare Maio, partner for energy and natural resources at KPMG in the UK. "Improving the competitiveness and predictability of UK energy costs will be essential to unlocking investment, supporting industry and delivering economic growth."

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