Household Energy Bills to Rise Again in January and April 2025

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UK inflation forecasts for 2025 have been hiked by Deutsche Bank as the government's job tax combines with rising gas prices.

Electricity and gas prices will rise again in the new year, with bills only likely to fall from the middle of next year.

This is according to researchers at Deutsche Bank who have updated their UK inflation forecasts in light of Wednesday's release of ONS inflation data for October.

"We update our Ofgem Price Cap assumptions. We now assume a 0.6% uplift in Jan-25, followed by a 1.2% rise in Apr-25. We continue to expect falls in dual fuel bills over July (-2%) and October (-1.5%)," says Sanjay Raja, an economist at Deutsche Bank.

The call comes after it was reported that UK inflation rose 2.3% year-on-year in October, up from 1.7% in September, thanks largely to rising household energy bills.

Economists can predict the direction of the Price Cap's movement based on existing market dynamics, primarily because gas is brought on the forward market. In short, household suppliers are currently buying next year's gas for delivery.

Gas prices have risen over recent weeks as Europe witnesses an unusually cold start to the winter.

The UK is unable to produce enough gas to meet domestic demand as successive UK governments stifle North Sea production to meet climate goals. This has left the UK highly dependent on sea-born shipments of liquified gas from the Middle East and North America, which can command a premium in cold snaps as the UK has also failed to invest in gas storage facilities.

Deutsche Bank says inflation will spike in April 2025 as mobile phone and home broadband bills rise alongside energy bills.

"We adjust higher our communication price uplift in Apr-25. Recent news points to sizeable price increases next spring. On our calculations we see price rises for broadband and mobile phone bills rising 7.5%-10% in April," says Raja.

Deutsche Bank says the government's job tax hikes, announced in the October budget, will be another significant driver of inflation next year.

"Most importantly, we update our projections for the employer National Insurance Contribution hike. We expect this to start feeding through into the price data from Jan-25, with the price adjustment expected to be largely complete by Q2-25," says Raja.

Deutsche Bank estimates forecast CPI inflation to rise by nearly 0.3pp in 2025, as firms reflect both increases to the National Living Wage and hike in payroll tax, hitting retail and services prices.

Analysts now expect headline CPI to jump from 2.5% y/y in 2024 to 2.9% y/y in 2025 (previously 2.5% ).

Core CPI will slow only from 3.75% in 2024 to 3.25% (previously: 3%). Services CPI will drop from 5.5% in 2024 to 4.25%.