The UK government will extend its energy price cap for households by an additional three months as it seeks to shield consumers during the cost of living crisis.

The Energy Price Guarantee, which has capped typical annual energy bills at £2,500 this winter, will continue from April to June, saving a typical household £160 during the three months, the Treasury said on Wednesday.

The EPG was set to rise to £3,000 from April 1 to limit the cost of the scheme to the government, but wholesale prices have fallen this year.

Prime Minister Rishi Sunak said the price cap extension was designed to “give people some peace of mind” until the summer, when lower wholesale gas and electricity prices are expected to feed through to consumer bills.

“Continuing to hold down energy bills is part of our plan to help hard-working families with the cost of living and halve inflation this year,” he said.

Analysts forecast that the price cap set by regulator Ofgem, based on wholesale prices and other costs, will fall below £2,500 from June unless wholesale prices rebound violently.

Most household energy bills will then switch back to being governed by the Ofgem cap, now forecast to be below £2,100 in the second half of this year by consultancy Cornwall Insight and investment bank Investec, who both lowered their estimates on Wednesday.

Cornwall said the price cap in the third quarter could fall to £2,013 while Investec forecast £2,056 for the same period, with similar prices in the last three months of the year.

Campaigners had pushed to leave the EPG cap in place to avoid a temporary spike in bills ahead of the summer.

Wholesale energy prices soared last year as Russia cut gas supplies to Europe as part of its invasion of Ukraine, with the benchmark European gas price peaking above $500 a barrel in oil terms.

Prices remain high by historical standards but have fallen by about 80 per cent from their peaks as a relatively mild winter and energy conservation efforts have left more gas in storage than normal.

UK chancellor Jeremy Hunt said in his Budget on Wednesday that the government would also lower costs for households on prepayment energy meters, bringing them in line with bills for customers who pay by direct debit.

Hunt said the reduction would benefit 4mn households who use prepayment meters, which have traditionally faced higher unit costs for gas and electricity than those making regular monthly payments.

“The energy premium paid by our poorest households is coming to an end,” Hunt said.

As expected, the government is maintaining the 5p a litre cut to road fuel duty for another year, which was introduced last year as oil prices rose following Russia’s invasion of Ukraine.

“The cut has given drivers some much-needed relief in what has been the most torrid year ever at the pumps, with price records being broken even after duty was cut,” said Nicholas Lyes, RAC head of roads policy.

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