British Gas, owned by Centrica, today announced that it is putting up its domestic gas and electricity prices from 18 August.

Gas bills will rise by an average of 18% and electricity bills by an average of 16%. The change will affect nine million households with the average dual fuel customer paying an extra £190 a year. The company blamed the rising wholesale cost of gas, which has gone up by 30% since last winter.

British Gas managing director Phil Bentley said its bills were being driven higher by the fact that the company buys 50% of its gas on the international wholesale market.”We are buying in a global energy market and have to pay the market rate,” he said. “Rising wholesale costs is an issue facing all energy suppliers,” he added.

The company said it had been selling energy at a loss for the past three or four months. “After we put these prices up we will be making a fair return,” Ian Peters, managing director of British Gas told BBC News. “We are investing in the future energy supply of the UK… and energy efficiency in our customers’ homes,” he added. Centrica had already warned that it was likely to raise prices this year. In May, the company said its customers were not paying enough to reflect the increased cost of gas on the wholesale markets, and that this would depress its profits for the first half of the year.

But this argument was rejected by Mike O’Connor, the chief executive of Consumer Focus. “Wholesale costs have gone up but they are still around a third lower than their 2008 peak,” he said. “Yet in this time British Gas’ prices alone have risen by around 44% on gas and 21% on electricity and suppliers have made healthy profits.”

Last year, British Gas’ residential business made £740m.

Spending squeeze

In June, Scottish Power became the first of the big-six energy suppliers to announce another set of price increases. It said it would raise the cost of gas by 19% and the cost of electricity by 10% at the start of August.

The latest increase in energy bills, which is lkely to be followed by other big energy suppliers, comes after a round of ncreases last winter which saw British Gas put its charges up by 7% in December.

“Average household bill for a dual fuel British Gas customer will now go up from £1,096 to £1,288,” said the price comparison service Uswitch. “In total, British Gas customers will have seen their bills shoot up by £258 or 25% within a year, taking them from £1,030 a year to £1,288,” Uswitch added.

Richard Lloyd, of the consumers’ association Which?, said the energy firm’s announcement was an unwelcome move. “Many people are already having to cut back on essentials because of the rising cost of living, and with energy bills rising further, this could be a cold winter for many,” he said.

The Energy and Climate Change Secretary, Chris Huhne, said the increasing burden of energy bills highlighted the need to move away from generating electricity by burning gas and coal. “The UK electricity market has to change, so that we escape the cycle of fossil fuel addiction,” Mr Huhne said. “Alternatives like renewables and nuclear power must be allowed to become the dominant component of our energy mix.”