Brexit has already added billions to the UK public’s energy bills and leaving without a deal could wreak further havoc and cost the average household an extra £61 a year, according to research by University College London.
The 2016 referendum has been the “principal factor” driving up gas and electricity bills over the past two years, driven largely by the collapse in the value of the pound and additional volatility in wholesale prices, the authors said.
As a result, households paid an extra £75 each, on average, in the year after the vote following an 18 per cent rise in wholesale electricity prices and a 16 per cent hike in gas.
The report, commissioned by energy watchdog Ofgem, sought to establish the key drivers of energy price increases in the UK and other European states between 2012 to 2017, and found a spike in prices in the wake of the referendum.
It warns that leaving without a deal is likely to further deflate the value of sterling, knocking around 12 per cent of its value relative to the euro, amounting to an extra £1.5bn in energy bills by March 2020.
“Forecasts always carry some uncertainty,” said co-author Professor Michael Grubb from UCL’s Bartlett School of Environment, Energy & Resources.
“But this research pinpoints historical fact: the referendum result, through its impact on exchange rates, has been the principal factor driving up UK household energy prices over the past two years.”
Wholesale gas prices accounts for 39 per cent of the price paid by UK consumers, so small fluctuations in price or the value of sterling can add a significant amount to import costs and consumer’s bills.
Variability in the wholesale rate increased by 60 per cent in the year after the vote.
To offset some of the uncertainty for consumers, the government introduced legislation in July that allowed Ofgem to cap energy prices at around £1,136 a year – saving consumers around £75 a year on average.
Dr Giorgio Castagneto, the report’s lead author, said: “We know that exchange rates fell after the EU referendum but we can now look at the effect this had on wholesale and consumer energy prices.
“The exchange rate depreciation plus the fact that energy prices are now much more volatile means consumers have been paying more and are facing even higher bills over the next several months.”
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