Families can expect another four years of sky-high energy bills, as economists warn that global gas prices are likely to remain elevated until at least 2026.
This month’s 54pc rise in energy bills is set to be followed by an increase of around 40pc later this year, according to official forecasts, and analysts at the Centre for Economics and Business Research said households should not expect a return to normal any time soon.
Douglas McWilliams, deputy chairman at the consultancy, warned of “consequences” for the economy as families suffer a long squeeze on their finances.
He said: “People can put up with high costs if only for a short period, but what our model suggests is, unless the Ukraine situation resolves itself, prices are likely to be high but falling for three or four years.”
This will change “fairly considerably” once more liquefied gas can be imported from countries such as Qatar to lower prices. But until that point, the strain is on.
“It is a tough scenario for people to live with,” he said. “They are going to have to get used to higher prices. They are going to have to learn to economise.”
The consultancy predicts the price per therm will dip only slowly from an average of 180p this year to 160p in 2023 and 2024, and 150p in 2025, before dropping more sharply to 118p in 2026 as Europe at last benefits from new LNG import terminals.
Even this is high by historic standards. Back in October, when the household price cap went up by 12pc, gas cost around 112p per therm, while a year ago it traded at around 50p.
Following this month’s larger increase, the average household annual dual fuel bill is now £1,971.
Mr McWilliams praised Rishi Sunak’s decision in the Spring Statement to remove VAT from green products such as solar panels and home insulation, and said the Government should consider taking further steps to ramp up installation.
“There is a case for saying he should actually go further and, particularly this summer, perhaps think in terms of an additional grant to get people to improve insulation, particularly if it gets done in time for October when prices go up again,” he said.
The economist added that global food prices are also rising sharply, putting more pressure on family finances, suggesting “wartime-type incentives” to produce more food in the UK, and increasing the amount of land under cultivation over the coming years.
It is not only price rises that are hitting household budgets. The warning comes as National Insurance (NI) payments go up from Wednesday with an extra 1.25 percentage points on the tax rate, meaning workers can expect a blow to this month’s pay packets.
Bosses will also pay the extra tax, putting more pressure on businesses and undermining their ability to afford higher wages.
The threshold at which NI is paid will rise to reduce the impact of the tax increase on lower-income workers, but only from July.
Meanwhile, workers will be hit by long freezes in income tax thresholds.
Analysts at the Institute for Fiscal Studies estimate that the average worker on £27,500 will be £360 worse off this year in real terms as a result.