The cut, with an earlier reduction of 3 per cent introduced in July, means that a family living in a three-bedroom semi- detached house with gas central heating will save pounds 27 over a year, while those in four or five-bedroom homes will save about pounds 36.
The reductions are within a tough new price cap agreed earlier this year which limits increases for the year to inflation minus 5 percentage points.
The formula also includes an element that allows British Gas to pass through to consumers its own costs of buying gas. The company now says that both inflation and gas costs are lower than previously anticipated, hence the second price cut.
At the same time British Gas announced a pre-tax loss of pounds 17m in the second quarter, compared with a profit of pounds 247m in the same three months of the previous year.
The company blamed the warmer than average weather, increased competition in the industrial gas market, and recession. Cedric Brown, chief executive, said that profits this year were likely to be lower than the pounds 1.7bn pre-tax result in 1991 unless the winter was exceptionally cold.
The impact of weather on profit in the second quarter was pounds 120m and pounds 200m in the first half.
Mr Brown said Britain was experiencing a 'one in fifty' warm summer, according to statisticians.
In the first half pre-tax profit was pounds 915m compared with pounds 1.3bn in the same period last year, while turnover fell from pounds 5.87bn to pounds 5.51bn. The board declared an interim dividend of 6.4p, which was in line with expectations. The accounting year-end recently changed from March to December, and no interim dividend was declared last year. The notional dividend for the 12 months to 31 December 1991 was 13.4p.
Mr Brown, who took over as chief executive only a few weeks ago, said he recognised that British Gas was viewed by many as bureaucratic, slow to change and against competition. He said culture and attitudes in British Gas would have to change as the market changed. 'We will endeavour to be open, frank and honest,' he said.
Mr Brown added that British Gas faced considerable uncertainty in coming months while the Monopolies and Mergers Commission examined the gas industry, but that the outcome for the group should be increased confidence and ability to invest for the future. He complained that regulation had in the past been piecemeal and that a sweeping MMC reference would put an end to that.
British Gas, whose entire business was referred to the MMC last month, also said that competitors now took about 15 per cent of the industrial gas contract market.
The group said these rivals, which include North Sea oil producers, were focusing on the premium end of the industrial market rather than customers who paid lower prices but might have supplies interrupted when demand peaked. This meant that the impact on British Gas was greater than first appeared.
The decision by British Gas to cut domestic prices in a recession was welcomed by the Gas Consumers' Council and by Ofgas. But the watchdog said it would continue to look at movements in inflation and other factors affecting the formula to see if further reductions in bills could be achieved.
John Dorkin, deputy director-general of Ofgas, said: 'We have only just received the relevant figures from British Gas and have yet to satisfy ourselves that customers are getting all they are entitled to.'
Relations between Ofgas and British Gas have been increasingly strained over recent months, with Ofgas seen as the consumers' champion.
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