British Gas to raise gas and electricity bills by 7%

media captionBritish Gas Managing Director, Phil Bentley: 'We recognise it's a difficult time'

British Gas customers will face a 7% rise in gas and electricity bills this winter, the company has announced.

The increase, which comes into effect on 10 December, was the result of rising wholesale prices, it said.

The rise affects eight million customers, but the company added that its 300,000 most vulnerable customers would initially not be charged more.

British Gas has become the second major UK energy supplier to announce price increases for the winter months.

It said that wholesale gas prices had risen by 25% since the spring.

"We know that rising energy prices come at a difficult time for many," said British Gas managing director Phil Bentley.

The company said prices for those on a typical dual-fuel deal would go up by £1.50 a week.

Vulnerable customers on the "Essentials" package with British Gas will have prices held until 1 April 2011.

Other suppliers

The announcement comes shortly after Scottish and Southern Energy (SSE) said it was to put up its domestic gas tariffs by 9.4% at the start of December.

SSE blamed wholesale prices for the increase in customer bills this winter, but apologised for the timing.

The announcement, on 29 October, came just before SSE reported a 6.1% fall in pre-tax profits to £386m in the first half of the company's financial year.

It was the first time for two years that standard prices among the "big six" energy suppliers have risen, and follows some price falls during last year.

Earlier this week, EDF issued a challenge to the other main energy providers by announcing it would freeze gas and electricity prices for residential customers over the winter, with standard tariffs fixed until at least March 2011.

Wholesale costs

The announcements could be the start of a trend, according to Ann Robinson of price comparison website Uswitch.

media captionAdam Scorer, Consumer Focus: "The reaction is one of dismay"

"After a two year lull, household energy prices are about to resume their steady climb upwards again," she said.

"Unfortunately for consumers, the 8% or £99 reduction seen over the last two years failed miserably to reverse the impact of the 42% or £381 increase seen in 2008. And now, whatever small benefit was seen is about to be wiped back out again."

She said the average household bill for a dual-fuel British Gas customer would now go up from £1,157 to £1,239.

Watchdog Consumer Focus argued that energy companies were shifting risk on to customers.

"British Gas and other suppliers respond to forward energy prices, and that will be their argument that price rises are needed," said Adam Scorer, from Consumer Focus.

"However, wholesale prices are around half of their peak in 2008 and yet in the same period customers prices were cut by less than 10%.

"Consumers will feel that suppliers did not make cuts when conditions allowed it, but are covering their profit margins as wholesale prices nudge up. At a time when there are reports of a gas glut it seems that consumers take on all the risk in this market."

If gas prices were increased by the same 7% across the board by energy companies, it is estimated that this would add 0.2% to the Consumer Prices Index measure of inflation in December.

The Bank of England, in its Inflation Report this week, assumed there would be a 10% rise in domestic gas prices before the end of this year - one reason for its higher inflation forecast of 3.5% for the early months of 2011.

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