UK households are facing another wave of financial pressure as energy costs rise, with mortgage borrowers set to feel the squeeze amid a sluggish economy, experts have warned. According to the energy industry regulator Ofgem, from October 1 to December 31, 2025, the price of energy for a typical household paying by Direct Debit will increase by 2% to £1,755 per year.
While this is £625 lower than the peak of the energy crisis in early 2023, for families already juggling food, mortgage, and childcare costs, every extra pound counts. Chris Barry, Director at London-based Thomas Legal, said: “This could be bad news for mortgage borrowers. We need inflation to reduce significantly if we are to see any meaningful reduction in the base rate.
« With energy prices back on the rise, overall inflation is less likely to come down, which will undoubtedly mean higher interest rates for longer.”
The increase, equating to roughly £2.93 per month or £35.14 for the quarter, may appear modest in isolation. Yet, financial experts warn that the broader economic context amplifies the impact.
The UK economy has failed to grow as expected, making it harder for households to find spare cash to support local businesses and leaving little breathing room for borrowing costs.
Philly Ponniah, Chartered Wealth Manager and Financial Coach at Philly Financial, said: “A 2% rise sounds small, but for families already stretched, it adds to the squeeze. Inflation may have technically eased, but wages and savings haven’t kept pace, so every extra pound a month is felt.”
David Belle, Founder and Trader at Fink Money, said: “Wholesale electricity prices have been declining since June, so it’s puzzling why the cap is going up. Ofgem typically calculates the cap based on past electricity costs, but the backwards-looking methodology seems out of step with current market conditions.”
Benjamin Beck, Money Coach at Beck Money Coach, said: “While the increase isn’t welcome, it’s far from catastrophic. Heating and electricity are essential, and there are steps people can take to manage spending. Shopping around for deals before the end of a fixed deal can help offset some of the burden.”
Even with these measures, experts warn that the cumulative effect of rising energy costs, stagnant wages, and persistent inflation could exacerbate financial strain, particularly for mortgage holders.
Borrowers are likely to see little relief unless inflation drops sharply, creating pressure on the Bank of England to maintain or even increase interest rates longer than anticipated.
Philly Ponniah said: “While energy prices remain well below crisis peaks, the perception of rising bills amid broader economic stagnation creates an added sense of financial vulnerability.”
Tim Jarvis, director general of markets at Ofgem, told Sky News: « There’s around a third of households that are on fixed rate deals, so they won’t be affected by today’s cap.
« And I would very much urge people who aren’t on a fixed rate deal to look at the market, see what’s available – we know there are deals on the market that are around £200 a year less than the price cap.
« There are two things that a fixed rate deal will do: one, it will insulate you from the fluctuations and the price cap, and the other thing it will do is generally provide cheaper prices.
« Look at the way you pay for your energy: people who pay for their energy when they wait for the bill are actually paying more than those on direct debit or smart pay-as-you-go.
« You can save yourself around another £130 a year by changing the way you pay. »
