Energy bills in the UK to increase by more than 50% in April, according to regulator's announcement.

• Suppliers in the U.K. are subject to restrictions on the amount they can charge customers for energy.
• The government's regulator, Ofgem, reviews Britain's energy price caps every six months.
• On Thursday, the energy sector regulator, Ofgem, announced a 54% increase in its price cap, which is a new record.

The energy regulator in the U.K. has announced that energy bills will increase by over 50% in April.

The government in the U.K. sets limits on the amount suppliers can charge consumers for energy, and these caps are reviewed every six months.

On Thursday, Britain's energy sector regulator, Ofgem, announced that it would increase the price cap by 54%, which would result in an average household's annual energy bill ranging from £1,910 ($2,670) to £2,029 ($2,810). This represents a record-breaking hike.

Households could see their energy bills increase by approximately £700 annually.

According to Ofgem, approximately 22 million households will experience an increase in their energy costs.

Ofgem, the energy regulator, has stated that the energy market is facing a significant challenge due to the unprecedented increase in global gas prices, a once-in-30-year event. As per the price cap, energy companies are only allowed to charge a fair price based on the true cost of supplying electricity and gas, as stated by Jonathan Brearley, CEO of Ofgem.

Ofgem aims to stabilize the market and diversify energy sources to safeguard customers from future price shocks.

Record highs in wholesale natural gas prices occurred in Europe last year due to a combination of factors, including low inventories and Russia's tightening of its gas supply to the EU, resulting in an energy crisis that continues to affect many countries in the region.

The U.K.'s heavy reliance on gas as an energy source has made it particularly vulnerable to the impact of the pandemic.

On Thursday, Rishi Sunak, the British Finance Minister, declared that all residential electricity customers would receive a £200 discount on their electricity bills starting in October, which would be repaid in £40 installments over five years.

Additionally, he declared that most households would receive a £150 refund on their council tax, which is a tax levied based on the worth of homes.

Pantheon Macroeconomics' chief U.K. economist, Samuel Tombs, predicted that Britain's electricity and natural gas consumer price indexes would increase by 39% in April, following Ofgem's announcement.

Their combined contribution to the headline rate of CPI inflation will increase to 1.6 percentage points in April, which is 0.1 percentage point below our previous forecast, from 0.7 percentage point in March. We anticipate that CPI inflation will reach its peak at approximately 6.5% in April.

Over 22 million British households are connected to the country's gas grid. The U.K. Continental Shelf is Britain's largest single source of gas, providing around 48% of total supply in 2020. However, as it is a mature source, the UCS must be supplemented with gas imported from international markets.

On Thursday, wholesale natural gas prices in the U.K. were trading at approximately £1.75 per therm, a slight increase from the previous day. At the same time, front month contracts experienced a 3% gain, trading at around £1.89 per therm.

In December, the prices for the day ahead reached their highest point of the year, surpassing £4.50 per therm.

Last year, nearly 30 U.K. energy suppliers went bankrupt due to the high cost of wholesale gas. Those that survived the crisis are calling on the government to either remove or increase the price cap.

Bill Bullen, CEO of British energy supplier Utilita, expressed his "huge concerns" about the potential impact of the next price cap review on winter energy prices, in a phone call with CNBC on Thursday.

He cautioned that the additional energy expenses would have a significant impact.

The possibility of increasing energy expenses has been a source of worry for consumers and businesses in the U.K. for several months, with many small business owners concerned that rising fuel costs could make it impossible for their companies to continue operating.

Inflation in the U.K. reached a 30-year high in January, contributing to the country's cost of living crisis.

Despite pressure from his own party members, Prime Minister Boris Johnson is set to increase taxes on earned income and shareholder dividends by 1.25% from April.

‘RIP the self-employed’

Kerry Mackay, owner of ScrubbiesUK, stated in an email that the sudden price increase had a devastating impact on businesses and individuals across the U.K. She added that she had to wear a blanket while working to reduce her energy bills.

Malcolm Baker, a frog breeder and seller, stated that the price cap increase would harm small businesses.

"The self-employed and sole traders are facing a massive rise that will negatively impact lower income families and disabled individuals who require constant heat in their homes, leaving them with no choice but to go hungry to stay safe," he stated.

As a business, we were taken aback by the rapidity of price increases, stated Adam Bamford, CEO of Colleague Box based in Derby.

We reduced the size of our sales team to cut costs, but this may negatively affect our long-term growth as fewer people mean less income," he stated in an email. "I believe the Government is indifferent towards businesses at the moment.