Inflation could increase to around seven per cent if the energy price cap shoots up in April as expected, according to reports.
The energy regulator Ofgem is currently reviewing the regulated price cap, which governs most retail energy bills and protects 15 million customers.
Due to sky-high wholesale gas prices, the cap is expected to rise by around 50 per cent – which would push average household costs of gas and electricity from £1,277 a year to as much as £2,000 from April.
Internal government estimates suggest that such a rise could see inflation rise by 2 per cent from its level of 5.1 per in November, according to The Times, which would exacerbate the cost-of-living crisis and put pressure on public finances.
A projection by the financial services company Goldman Sachs similarly suggests that rising fuel bills could help push inflation to 6.8 per cent, the highest level in 30 years, the newspaper reports.
Boris Johnson and Chancellor Rishi Sunak are due to discuss the energy crisis early next week, as concerns grow about the impact of the price cap rise on households.
Charities, including the fuel poverty charity National Energy Action, have warned that the steep rise in costs will see “an avalanche” of people falling into debt or rationing heating.
Days of talks between Business Secretary Kwasi Kwarteng and energy firms have been held to discuss possible measures to ease the impact on consumers.
Some firms have called on Whitehall to set up a “stabilisation fund” in order to help them even out price hikes over a five-year period.
However British Gas owners have rejected the idea of a taxpayer bailout.
Writing in The Sun, Chris O’Shea, the chief executive of Centrica, which owns British Gas, suggested the Government could reduce costs for consumers by other means, such as scrapping environmental levies or suspending VAT on energy bills.
He wrote: “We haven’t asked for a bailout, we don’t want a bailout and we oppose any bailouts.
“Our advice to the Government is to try to help those customers who are already struggling to make ends meet, not to worry about helping energy companies’ balance sheets.”
A total of 27 energy firms have collapsed since 2021 due to soaring wholesale gas prices.
Ofgem is due to announce the level of the increased price cap – which will be in place between April and September – on or around 7 February.