The energy regulator confirmed the price cap will rise by 54% from April 1, affecting around 22 million customers.
People paying default tariffs by direct debit will see an increase of £693 from £1,277 to £1,971 per year, while prepayment customers will see an increase of £708 from £1,309 to £2,017.
It will affect default tariff customers who haven’t switched to a fixed deal and those who remain with their new supplier after their previous supplier exited the market,” said Ofgem in an update.
Following the announcement, Chancellor Rishi Sunak said the government will “step in” to help households directly manage “incredibly tough” energy costs.
To help remove the “sting” from the energy crisis, Mr Sunak told MPs the vast majority of households will receive £350 of support through council tax rebates for homes in bands A to D and an upfront discount on bills.
Ofgem agreed the steep price hike will be “extremely worrying for many people” and advised customers who are struggling to contact their supplier to access support available.
The cap rise has been driven by a record increase in global gas prices over the last six months, with wholesale prices quadrupling in the last year.
The news came just before the Bank of England has raised interest rates for the second time in three months in a bid to cool soaring prices.
The increase to 0.5% from 0.25% comes as prices are climbing at the fastest rate in 30 years, and there are fears that pace will accelerate.
By putting up interest rates, the Bank of England hopes to make borrowing and spending more expensive, dampening down consumer prices.
But some analysts question whether it will work as major factors driving inflation – such as soaring energy bills – are dictated by global forces.
Latest figures show inflation hit 5.4% in the 12 months to December, and the Bank of England has today warned the rate could reach around 7% in the spring, well above its target of 2%.
Ofgem chief executive Jonathan Brearley said: “We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.
“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.
“Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future.”
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