Ofgem is lowering its energy price cap from the current £3,280 per year to £2,074 for the average household in England, Wales and Scotland, effective from July 1, it has announced.

Ofgem said the £1,206 reduction to the cap reflected recent falls in wholesale energy prices.

The lower cap will replace the Government’s Energy Price Guarantee (EPG), which currently limits the typical household energy bill to around £2,500.

It means the average household will see their annual bill drop by £426.

The cut to the cap marks the first time consumers on default tariffs have seen their prices fall since the global gas crisis took hold more than 18 months ago, Ofgem said.

At its peak, the price cap reached £4,279 and, “whilst today’s level is lower than last quarter, it is still above the levels it was before the energy crisis took hold, meaning many households could still struggle to pay bills”, the regulator added.

Ofgem chief executive Jonathan Brearley said more focus will be needed for government, the regulator and the industry to support the most vulnerable groups this winter.

Mr Brearley said: “After a difficult winter for consumers it is encouraging to see signs that the market is stabilising and prices are moving in the right direction. People should start seeing cheaper energy bills from the start of July, and that is a welcome step towards lower costs.

“However, we know people are still finding it hard, the cost-of-living crisis continues and these bills will still be troubling many people up and down the country. Where people are struggling, we urge them to contact their supplier who will be able to offer a range of support, such as payment plans or access to hardship funds.

“In the medium term, we’re unlikely to see prices return to the levels we saw before the energy crisis, and therefore we believe that it is imperative that government, Ofgem, consumer groups and the wider industry work together to support vulnerable groups. In particular, we will continue to work with government to look at all options.”