UK energy prices to rise five times faster than inflation

Britons will face significantly higher energy costs this winter after the nation's biggest supplier became the latest to announce a massive price increase that could complicate policy decisions by the Bank of England just as the economy emerges from recession.

EDF Energy, one of the country's biggest providers, will increase its home energy tariff by 10.8 percent from December, five times faster than inflation, just weeks after a 6 percent and 9 percent price rises from rivals British Gas and RWE npower.

The increases come just as UK inflation eased to the slowest pace in nearly three years, according to the Office for National Statistics, which warned the cost increases could hike the headline consumer price index in the coming months.

Prime Minister David Cameron has also used the issue of mounting home energy costs to encourage the country's biggest providers to be mindful of their impact on the fragile recovery.

"Energy bills have increased by more than £100 for some people since this summer," the Prime Minister wrote in a blog published on the consumer website moneysavingexpert. "These price rises couldn't come at a worse time for consumers for are already feeling the pinch from rising petrol prices and the cost of the weekly shop."

The timing isn't great for the Bank of England, either, as it debates whether to increase its programme of quantitative easing and lower its benchmark lending rate in order to ensure the recent recession exit is sustainable. The Bank's Monetary Policy Committee will make its decision on 8 November and publish a new set of growth and inflation forecasts the following week.

Headline consumer price increases have risen past the Bank's preferred 2 percent target for nearly three years and the MPC has been concerned that adding more liquidity to the economy through more asset purchases or lower rates could stoke faster inflation and snuff out the nascent recovery.

Its last forecast suggested inflation would stay above its preferred 2 percent target until at least this time next year before accelerating again into an average pace of 2.1 percent in 2014.

However, the Bank noted that "the near-term outlook for inflation will also be affected by changes in retail gas and electricity prices, which depend heavily on developments in wholesale gas prices. Sterling gas spot prices have decreased by around 9 percent since the May Report though futures prices fell by slightly less. That fall in gas prices has reduced the likelihood that domestic energy suppliers will increase their gas and electricity prices in the autumn. But continuing rises in the other costs that those suppliers face, such as those associated with distribution, are likely to result in small increases in domestic energy prices around the turn of the year"

The government's Office for Budget Responsibility also noted, in its last evaluation of the economy, that "consumer spending has contributed less to GDP than we expected primarily because higher prices for oil, energy and food have reduced the volume of goods people could buy for a given amount of cash."

The issue has had an intense political dimension, as well, after the Prime Minister backed away from an earlier pledge to use the regulator, Ofgem, to force providers to charge some consumers the lowest available tariff. Opposition Labour MP Caroline Flint, the party's chief energy spokesperson, said last week that Labour would scrap Ofgem and "break the dominance of energy giants, protect vulnerable customers from being ripped-off and create a tough new energy regulator with the power to force energy companies to pass on savings to consumers."

Ofgem has said it will ask provides to simplify the range of their tariff offerings and clearly advertise the cheapest option to customers in "the most far-reaching shakeup of the retail energy market since competition was introduced."

The regulator plans to outline details of its reforms Friday.