Some personal finance advice in recent times has become VERY reliant on forecasts from energy analysts, which suggest it might be a good idea to take advantage of new fixed rate tariffs coming back onto the market before the price cap creeps up again. But is this the way to go? I offer my perspective…
Ever since the beginning of the month, a debate has been bubbling up in money circles. Should you jump on the new fixed rate tariffs being offer by energy suppliers? Or should you wait to see if the Ofgem energy price cap falls further, which would lead to even-better deals?
Just to recap, this is the first month this year that households have started to see their energy bills drop. With wholesale gas prices coming down, the government has decided to suspend its energy price guarantee (for now) and revert to the status quo ante whereby the regulator’s price cap determines bills. This has fallen to £2,074 – still well above where it was in 2021 but an improvement nonethless.
Some energy providers have responded to the falling price cap by bringing back fixed rate tariffs. Meanwhile, analysts are already putting forward predictions for the energy price cap over the next six months, with some suggesting things won’t get much better than this. Cornwall Insight, the consultancy used by Moneysavingexpert.com, has pinned its colours to the mast, saying that October’s price cap may fall slightly but then actually rise again in January.
This has led MSE to advise people to strongly consider tariffs priced below the current energy price cap, albeit with the caveat that there are no guarantees. But this makes me uneasy.
Why? Well, let’s have a look at how Cornwall Insight’s previous forecasts have turned out. In August 2022, it said the energy price cap in April this year would be £6,616 a year. This was eagerly picked up by the media and various financial commentators, and certainly played into Liz Truss’s decision to introduce the universal (and very expensive) energy price guarantee, capping average bills at £2500.
Cornwall Insight’s cap predictions for next year are ominous @CityAM :
Jan 23 – £5,386
Apr 23 – £6,616!!
Jul 23 – £5,897
Oct 23 – £5,887
— Nicholas Earl (@nearlblog) August 26, 2022
The actual level was £3,280 a year, more than half what was forecast.
Even the shorter-term prediction for January (£5,387) was some way off how it turned out (£4,279). These are by no means slight margins of error.
This is not a criticism of Cornwall Insight because forecasting is hard, especially in turbulent energy markets like these, and energy analysts are the first to say their predictions shouldn’t be treated as gospel. But the media too often reports them as if they are, and there isn’t enough revisiting of these predictions to assess whether they have turned out to be correct.
There are real dangers in using forecasts & current trends to decide whether to fix your energy tariffs. I’d be wary of suggestions that fixing at current levels would offer ‘certainty’. A LOT can change in 6 months.
Things could get worse – but then again, they could get bette. Certainly gas prices have fallen more quickly than was previously predicted. You’d feel very silly if you fixed for 12 months now, only to see the price cap fall again in October and better deals come on the market.
Yes, it’s frustrating to not have more concrete answers. But I think it’s better to make sure your energy firm charges the correct direct debit for your usage, especially over the summer months when you’re (hopefully) building up a decent surplus. Beyond that, let’s wait and see…