December 10, 2018

Brexit increased UK energy bills by £2bn – and it could be about to get worse

By Robert Scammell

In the year after the Brexit referendum consumers paid an average of £75 more for gas and electricity, an overall increase of £2bn.

Researchers from University College London (UCL) found the depreciation of the pound to be the “principal factor” in rising energy prices.

And they warned that if the UK opts for a hard Brexit, British consumers could face a further increase of £61 per year. In total, that would amount to an extra £1.5bn to the UK’s energy bill between March 2019 and March 2020.

Lead author Dr Giorgio Castagneto Gissey from UCL’s Bartlett School of Environment, Energy & Resources, said: “We know that exchange rates fell after the EU referendum but we can now look at the effect this had on wholesale and consumer energy prices.

“The exchange rate depreciation plus the fact that energy prices are now much more volatile means consumers have been paying more and are facing even higher bills over the next several months.”

Brexit energy prices: Wholesale gas costs rose by 60%

Much of the UK’s gas is imported via pipelines from Norway, the Netherlands and Belgium.

Wholesale gas prices rose by 60% in the year after the vote, which translated into a 16% – or £40 – increase for consumers.

During the same period, electricity rose by 18%, an average increase of £35 per consumer.

Increasing energy prices led to the government passing a law in July that gave Ofgem the power to set a price cap. In September, Ofgem put this into action and announced plans for a cap, which will reportedly save 11 million households £75 per year.

Co-author of the study professor Michael Grubb, also from UCL, said:

“Forecasts always carry some uncertainty, but this research pinpoints historical fact: the referendum result, through its impact on exchange rates, has been the principal factor driving up UK household energy prices over the past two years.”

The study analysed energy prices between 2012 and 2017. Its future forecast is based on further depreciation of the pound and assumes other factors remain constant.

Read more: What impact will each Brexit outcome have on the pound?

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