Martin Lewis has previously told households to “do nothing” and not commit to an energy contract. We are now halfway through the October price cap evaluation period, so has the advice changed?
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MoneySavingExpert founder Martin Lewis has issued an update on whether households should now sign up for an energy contract.
Energy bills have soared at an unprecedented rate over the last month after regulator Ofgem raised its price cap by £700 on April 1.
For those on a standard plan paying by direct debit, the price cap has increased from £1,277 to £1,971 – an increase from £693.
Prepay customers have seen a bigger jump, with their price cap increasing by £708 from £1,309 to £2,017.
The price cap limits how much households can be billed for each unit of gas and electricity they use.
With prices likely to rise again later this year, many households are wondering whether they should strike a deal now.
In a new video posted to his Twitter page, Martin explained how analysts at Cornwall Insight expect the price cap to rise another 32% when it is re-rated in October this year.
This would bring the October price cap to around £2,600 for someone with typical energy consumption and a standard tariff.
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We are currently in the middle of the October price cap assessment period, which is primarily based on wholesale prices paid by energy companies between early February and late July.
“It means we have a little more certainty because things are solidifying from where they were before and what’s likely to happen in October,” Martin said.
“As we are in the middle of the period… there is a very small chance that we will see a price drop in October.
“For that to happen, we would need to see a monumental, unprecedented drop in wholesale gas and electricity prices.”
From April 2023, according to Martin, prices will be “much more uncertain because we are not yet in the assessment period”.
Cornwall Insights forecast the April price cap to drop by around 12% from the October price cap, taking someone with typical usage to £2,300 – so still above the current April price cap.
Martin then explained that if you take all of these predictions into account, you would expect rates to be about 17% higher on average than they are now.
Based on that, the MSE founder said if you can find a solution that’s no more than 17% higher than the rates you’re currently paying, “then it’s worth doing”.
However, if you are worried about your energy bill and want price certainty, you should perhaps consider a slightly higher tariff.
“I think a fix has the benefit of price certainty… So if price certainty is important to you, I think it’s worth considering as a premium,” Martin said.
“I would suggest as a rough rule of thumb, although the math says 17%, if you could find a fix no more than 25% above the current price cap and you value price certainty, it’s probably worth a fix at that price .
“It’s worth remembering that if interest rates went down dramatically in the future and you could repair at a much cheaper price in the future, you would pay an early exit penalty.
“But that’s relatively trivial compared to what people pay for gas and electricity today.”
Of course, no one can be sure how energy prices will develop over the next few months.
Martin also said his analysis is based on the six-month price cap, which is updated every April and October.
Consultations are currently taking place to discuss whether it would be reassessed more frequently.
“That’s my best guess. I don’t have a crystal ball and there’s a lot of uncertainty out there,” he said.
“I’m doing my best with the information I have, but I can’t promise anything.”
https://www.mirror.co.uk/money/martin-lewis-issues-new-update-26820033 Martin Lewis issues a new update on whether households should set their energy tariff