Price war hope as British Gas cuts bills

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British Gas handed 8 million customers £55 each yesterday in a surprise move which is likely to prompt a price war among energy suppliers.

Britain's biggest energy supplier cut gas bills for most customers by 7 per cent, making it the cheapest of the Big Six. It also cut bills for pre-payment customers by 9 per cent by equalising their deals with standard tariffs – a long-standing demand from poverty campaigners.

The moves come three weeks before British Gas's parent company Centrica reveals what one financial analyst yesterday described as "embarrassingly high" full-year profit figures. Stockbrokers forecast they will rise by 47 per cent from £379m to £555m.

Commentators said the figures could be even higher due to the cold snap which began in the last two weeks of December and continued into last month. The locking-in of large profits may explain why British Gas acted yesterday, rather than waiting until the end of peak winter demand before making the cuts, as some consumer groups had feared.

The company's decision is the first major cut in prices for months, and increases pressure for similar action from the other members of the Big Six – E.ON, EDF, npower, Scottish & Southern and ScottishPower – which hold 99 per cent of household energy accounts.

Phil Bentley, British Gas's managing director, said it recognised consumers' worries about the impact of the recent cold weather on their bills. "I'm pleased we're able to offer our customers some extra help with this gas price cut – and that we're able to do this while it's still winter, allowing our customers to really feel the benefit," he said.

The company's average annual dual fuel bill is now £1,123 compared with £1,310 in January 2009. However, customers are still paying much more than they were at the beginning of 2008, when a surge in the oil price pushed up wholesale gas costs. An average annual British Gas bill in January 2008 was £1,055. The Independent has been campaigning for lower energy bills.

Audrey Gallacher, of Consumer Focus, described the price cut as a "rare piece of good news" and urged other suppliers to follow suit. She advised British Gas customers that they might still be able to find better deals elsewhere. Internet-only deals are little more than £900 a year. "Consumers could have seen prices fall earlier, as energy companies should have passed on wholesale price cuts before winter," she said.

The National Housing Federation noted that British Gas was the last of the Big Six to lower its pre-payment tariffs, hailing it as "a great day for social justice [which] means that almost one million people, many of whom are on lower incomes, will now find it easier to pay for their energy and heat their homes."

Angelos Anastasiou, an analyst at Ambrian Partners Ltd, said he believed British Gas wanted to take the heat off its full-year results on 25 February. "I would be staggered if they weren't aware of the negative PR that comes from reporting high-ish profits," he said.