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Spiralling energy prices 'boost' cost of living

16/02/2006

Soaring energy costs are placing a burden on industry and having a detrimental effect on the cost of living for British households.

A report by analyst Datamonitor warns that consumers in Britain not only face gas and electricity bill hikes, but also increases in the cost of train tickets, council tax, groceries and hotel bills.

The company points out that, while residential consumers' bills are pushed up by higher energy prices, steep oil and gas costs also filter through to a range of other sectors.

In a report on the inflationary pressures caused by soaring energy bills, Datamonitor suggests that the main effect will be extra pressure on the cost of living for consumers, rather than a reduction in international competitiveness or output.

Datamonitor energy senior analyst David Scott notes that many of Britain's largest energy buyers are national supermarkets, public sector buying groups and telecommunications companies, with inelastic demand.

These companies and public sector organisations are forced to pass extra costs directly onto consumers, inflating the cost of living. The analyst estimates that the top ten per cent of electricity buyers represent 75 per cent of volumes.

Mr Scott said: "The increased costs of energy for these companies will be passed directly onto UK consumers, rather than result in reduced production or reduced international competitiveness. As a result, the energy bill at home will not be the only way rising energy costs increase the cost of living for residential consumers."

Datamonitor predicts that "the rising cost of energy for industry will have greater affect on the cost of living than on the UK’s competitiveness".

Energy prices soared in 2005 amid fears of supply shortages in both the gas and oil sectors, pushing residential energy bills up by as much as 15 per cent.

The effect of high energy bills has also been felt across the manufacturing sector, with companies like chemicals group Ineos Chlor forced to drastically reduce production over the winter.

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