Energy price cap warning as wholesale gas costs spike in January

Wholesale gas prices have surged by more than 40% in January as a combination of factors – described by analysts as a "perfect storm" – put renewed pressure on the energy market.

While households on fixed-rate tariffs won't see any immediate changes to their monthly payments, the situation raises serious concerns about future energy prices. The "lag" between wholesale price changes and the bills you pay exists due to the fact that energy suppliers buy their gas and electricity months in advance – a process known as hedging – to smooth out daily price spikes.

Ofgem, the energy regulator, calculates the Energy Price Cap by analysing wholesale costs over a three-month period, and the surge in gas prices in January falls directly within the observation window used to determine the April 2026 price cap. Consequently, while analysts had previously forecast a drop in energy bills for this spring, these higher wholesale costs are now being added into the calculation, potentially reversing those hopes and keeping bills higher for longer.

Why are gas prices rising?

The sharp increase in wholesale gas prices is being driven by a combination of high demand and supply shortages. Key factors include:

• Cold weather - A freezing start to the year across the UK and Europe has significantly increased demand for gas to heat our homes.
• Low wind speeds - A period of dark, still weather has reduced output from wind farms, forcing the electricity grid to rely more heavily on gas-fired power stations.
• Supply issues - Imports of Liquefied Natural Gas (LNG), particularly from the US, have slowed, while European gas storage levels have dropped to around 52% of capacity. This is well below the capacity of 61.7% recorded at the same time last year.
• Geopolitical tensions - Ongoing instability continues to make energy markets volatile, with traders reacting nervously to any potential disruption.

Source: https://tradingeconomics.com/commodity/uk-natural-gas - Correct as at 20.01.26

Will my energy bill go up?

If you are currently on a fixed-rate tariff, your unit rates are locked in and will not rise for the duration of your deal. For those on a standard variable tariff (SVT) protected by the Ofgem Energy Price Cap, your rates will not change immediately either. The Energy Price Cap is set quarterly, and the rates for January to March 2026 have already been fixed.

However, wholesale prices heavily influence future Energy Price Cap calculations. If these high costs persist, they could lead to a rise in the Energy Price Cap from April or July 2026, reversing hopes of cheaper energy bills this spring.

Is now a good time to fix?

The most immediate impact of rising wholesale gas prices will likely be seen in the fixed-rate market. To protect their margins, energy suppliers often withdraw their cheapest fixed-price tariffs when wholesale costs rise. If you have been considering switching to a fixed deal to lock in certainty, the window to secure the lowest rates may be closing, so if you have been putting it off, it may be wise to act sooner rather than later. Check out our article 'Should I fix my energy prices?'.

What you should do next

• Check the best fixed-rate deals - Compare the fixed tariffs currently available against the Energy Price Cap. If you value certainty over the risk of future price rises, fixing might be a sensible option. You can check out the latest deals in our article 'What is the cheapest fixed-price energy tariff'.
• Monitor the market - Keep an eye on announcements regarding the April Price Cap, which Ofgem will announce in February.
• Focus on efficiency - The most effective way to lower your bill is to reduce usage where possible. Simple changes, such as lowering your flow temperature or draught-proofing, can make a difference. Check out our article 'How to save money on your energy bills'.