Brexit leading to higher energy bills in UK: Study

Consumers in Britain paid on average 75 pounds more for gas and electricity in the year after the UK referendum to withdraw from the European Union (EU) or Brexit, a study has found.

A hard Brexit could lead to a further average rise of 61 pounds per year in the event of further devaluation of sterling to pound-euro parity, said researchers from the University College London (UCL) in the UK.

The study found that energy bills increased overall by two billion pounds in 2017 due to the lower value of sterling relative to the euro and US dollar.

The average wholesale prices of electricity and gas rose by 18 per cent and 16 per cent respectively in the year after the referendum, translating into a 35 pound increase for electricity and 40 pound for gas, researchers 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," said Giorgio Castagneto Gissey from UCL.

"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," Gissey said.

The wholesale gas price makes up 39 per cent of the price paid by consumers, so the 16 per cent increase resulted in a six per cent (40 pounds) increase in retail prices.

The variability of wholesale gas prices increased by 60 per cent in the year after the vote, researchers said.

"Forecasts always carry some uncertainty, 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," said Professor Michael Grubb from UCL.

The UK Government passed a law in July giving energy regulator Ofgem the power to set a price cap, and subsequently a cap said to save the average household 75 pounds a year on standard tariffs has been proposed, researchers said.

The predicted price rise of a further 61 pounds resulting from a hard Brexit breaks down into 29 pounds from electricity and 32 pounds for gas, they said.

This corresponds to a predicted extra 1.5 pounds billion added to consumers' annual energy bill from the end of March 2019 to the end of March 2020.

The academics analysed the behaviour of the wholesale electricity price in the UK alongside the sterling to euro exchange rate between 2012 and 2017.

They found that as the exchange rate fell dramatically after the EU referendum the electricity price increased over the subsequent year, directly reflecting the resulting higher cost of energy imports.