This autumn, the cost of gas and electricity for a typical UK household is expected to rise from £1,663 to £1,723 a year.
Authors
- Giray Gozgor
Associate Professor of Economics & Finance, School of Management, University of Bradford
- Erhan Kilincarslan
Reader in Accounting and Finance, University of Huddersfield
The change, due to higher wholesale gas prices, will be easy enough to spot on a household bill. But those rising costs can also affect people in less obvious ways, through the price of a coffee, for example, or a pub lunch or haircut.
That’s because the energy price cap – which limits the unit rates suppliers can charge – applies only to households on certain tariffs . It does not apply to the energy bills of small businesses.
Many cafes, bakeries, pubs and shops arrange their own energy contracts with suppliers , either directly or through a broker, sometimes fixing the unit price for several years.
What each business pays depends on the type of contract and the deal it secures.
And not all businesses will be affected at the same time. Two cafes, for example, operating on the same high street, might be using similar ovens, fridges, coffee machines and lighting. But if one signed a fixed energy contract last year, and the other has a contract that ends next month, their overall costs could soon look very different.
The first cafe may remain protected from higher wholesale prices under its existing contract for quite a while. The second faces current market conditions when arranging its next deal, and could receive a higher renewal quote.
The two businesses can therefore be paying very different energy bills despite using roughly the same amount of electricity.
A contract negotiation can work in the other direction, of course. A business that fixed its price near the peak of a previous energy price crisis may end up receiving a cheaper offer when it renews. The timing of a contract, its duration and the rate previously agreed all help determine whether renewal brings an increase or a saving.
But if a cafe receives a higher renewal quote, it cannot simply stop using its fridge or coffee machine. And it may have little scope to switch its use of power to times of day when energy is cheaper. Customers want coffee in the morning and meals at lunchtime.
High street pressure
So the owner is left with a short list of difficult options. They can raise prices, accept lower profits, reduce staff hours and opening times or postpone other spending.
Some will decide on a mix of these responses. Research shows that during previous energy price shocks, profitability declined for many UK firms. This suggests that businesses absorbed some of the higher costs rather than passing them on in full to customers.
But for a company operating on a narrow margin, even a small increase in the cost of doing business can force a visible change.
And this is one of the reasons why this inflation rate can linger more broadly. Businesses do not all face higher energy costs at the same time. Some face an immediate increase in their energy bills, while others experience it when their fixed contracts expire.
As these contracts come up for renewal at different times, higher energy costs can gradually feed through into the prices customers pay. Official figurs show that around 60% of UK firms have fixed-price gas and electricity contracts, meaning that higher energy costs can take time to feed through fully.
In August 2026, the annual rate of inflation in restaurants and hotels was higher (4.1%) than the general UK inflation rate (3.1%). Energy costs are one of several factors influencing higher prices in the hospitality sector.
Today’s menu prices may partly reflect energy contracts signed months ago, while future prices can reflect deals being negotiated now.
And while the household price cap is updated every three months (and until March 2027 will be accompanied by the removal of VAT from electricity), energy contracts for businesses follow thousands of separate calendars. When renewal brings higher costs, owners must decide how much they can absorb and how much they can pass on to customers.
But even an eventual fall in wholesale energy prices will take time to lower businesses’ costs. And it may just slow down further price increases rather than lead to cheaper refreshments on the highly pressured high street.
