Ofgem Price Cap: 4 Ways SMEs Are Affected

The energy price cap, which limits the amount energy suppliers can charge per unit of gas and electricity, is set to increase from 1st October 2024. The cap will rise to an average of £1,717 annually, representing a 10% increase for the typical household. While directly affecting domestic energy consumers, this increase has important implications for small businesses across the UK.

Indirect Impact Only

The cap rise comes amid concerns over the UK's reliance on imported natural gas, which leaves the country vulnerable to global market fluctuations. Ofgem, the energy regulator, has urged households to shop around for fixed-rate deals, which could offer some stability. However, with wholesale gas prices driving up costs, many fear this increase is just the beginning of a challenging winter.

While the price cap directly impacts domestic customers only, businesses could feel the ripple effects in several ways:

1. Increased Operational Costs

The coming rise in domestic energy prices will inevitably lead to increased costs for small businesses that share energy suppliers. While commercial energy contracts are completely separate from domestic ones, the upward trend in wholesale prices that drove the price cap shift will likely influence the prices offered to commercial customers when they renew or negotiate contracts.

For small businesses, particularly those in energy-intensive industries like hospitality, manufacturing and retail, this could result in higher operational costs.

2. Reduced Consumer Spending

With households facing higher energy bills, disposable income is likely to be squeezed further. This will likely reduce consumer spending, particularly in non-essential areas such as dining out, leisure activities and retail shopping.

Small businesses that rely on consumer spending may see a downturn in revenue as customers prioritise essential expenses like heating, fuel and food.

3. Pressure on Employee Wages

As workers face higher living costs due to the energy price cap increase, there may be pressure on SMEs to offer pay increases. This could pose a challenge for companies already dealing with tight margins, forcing them to balance supporting their team and maintaining financial health.

4. Supply Chain Disruptions

The increase in energy prices could also impact suppliers, particularly those who rely heavily on energy for production, refrigeration or transport. This change could lead to price increases for goods and services that small businesses rely on.

In some cases, disruptions to supply chains could occur if suppliers fail to manage rising costs.

Winter is Coming

Small business owners should take proactive steps to mitigate the potential impact of the energy price cap rise. This includes reviewing energy contracts, considering fixed-rate deals, and exploring energy efficiency measures to reduce consumption.

Additionally, businesses should keep a close eye on Government measures or support schemes that could be introduced to assist during this period of increased costs. Staying informed will be key to navigating the challenges posed by the energy price cap increase and its indirect impact on businesses in the UK.

Cost-Cutting Begins at Home

Once you've compared Business Energy tariffs, check if you could save money on your Home Energy bills. Fixing your Home Energy Tariff now can provide you with year-long stability, and with current fixed rates being competitively priced, it might be a good time to switch. At UKPower, you can quickly compare gas and electricity suppliers to get competitive domestic energy prices and cut your bills at home.

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