gas burnerAndrew Milligan/PA Archive/Press Association Images

Ovo has announced a price cut for its new and renewing dual fuel customers today. It's a 4.5% drop, and according to Energyhelpline.com it means an average household will now pay £1,088 a year for the New Energy dual fuel tariff, compared with £1,140 previously – a drop of £52.

But is this a sign of things to come?

Cut your bills


The price drop is certainly welcome. Any saving is always a bonus, and after years of ever-increasing prices it feels like a blessed relief. However, the experts are warning that we shouldn't get too carried away.

Cut your bills


In context

For a start, this may be a cut, but prices are still stratospheric across the board. In general the cheapest deals on the market are £24 a year more expensive than they were in January this year. Even after the cut, Ovo's prices are up £27 from January.

What we are seeing is a slight easing of pricing pressure, and the energy companies jostling slightly for a tiny sliver of pricing advantage. Mark Todd, director at independent price comparison service Energyhelpline.com, said: "We have seen a big shake up of the best deals league table, where the larger suppliers are all dropping their prices to compete and gain new customers. Whilst six months ago, smaller players like first:utility and Ovo dominated the cheapest prices, they have been pushed down the list and don't even make the top five."

"This price cut by Ovo is clearly an attempt to muscle in with the bigger suppliers to offer the best deals. Competition between suppliers to win new customers is higher than ever."

What next?

Unfortunately he doesn't see the future of energy prices as a continual downward path - far from it. He says: "The energy market is really volatile at the moment and whilst wholesale prices have been in slight decline lately, the tide could easily turn and consumers should be prepared for possible rises in the run up to winter."

He highlighted a number of forces at work in the market pushing prices up. Perhaps the most overwhelming is that wholesale prices rose so much at the beginning of the year. Added to that is Germany and Japan consuming more gas as they switch off nuclear power stations post-Fukushima disaster - which is only going to push the price up further. Then there is the cost of replacement of old UK energy infrastructure to factor in, and the increasing stealth taxes from the Government to fund green measures.

On the flip side, slow economic growth across the world is keeping a lid on prices, and bills did come down very slightly this spring. If the Euro collapses we could see big falls. However, if the currency clings on, Todd says the only way is up for energy prices.

Current best deals

1. EDF Blue + Price Promise September 2011. Average cost £1,054
2. Scottish Power Online Energy Saver 19. Average cost £1,055
3. Sainsbury's Energy Online Price Freeze June 2013. Average cost £1,058
4. npower Bill Saver August 2013. Average cost £1,061
5. npower Energy Online October 2013. Average cost £1,064
6. OVO Energy New Energy Fixed. Average cost £1,088
source: Energyhelpline

More stories