Energy regulator Ofgem has cut the price cap on British domestic energy bills by £1,206 following a fall in wholesale gas and electricity prices.

The price cap will fall to £2,074 a year from July for typical households, compared with £3,280 over the past three months.

The cap governs the maximum energy suppliers can charge customers on default tariffs, although the government has been footing a chunk of the bill for households since October.

The drop in the level of the cap means that government support will now fall away, while typical households will pay about £426 less a year.

However, bills under the cap will still be about 60 per cent higher than before the surge in energy prices that started in late 2021 — in the run-up to Russia’s invasion of Ukraine — which helped push up UK inflation and triggered the cost of living crisis.

Jonathan Brearley, chief executive of Ofgem, the energy regulator, said: “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.”

Introduced in 2018, the price cap sets a limit on the amount suppliers can charge households for each unit of electricity and gas.

The £2,074 level reflects estimates for typical households under the cap, but actual bills will vary depending on usage.

The new unit caps are 30p for each kilowatt-hour of electricity and 8p for each kilowatt-hour of gas, compared with 51p for each kilowatt-hour of electricity and 13p for each kilowatt-hour of gas previously.

Standing charges remain the same at 53p a day for electricity and 29p a day for gas.

The price cap is reset every three months to reflect changing wholesale costs. It started climbing in April 2022 following a surge in wholesale gas and electricity prices connected to Russia’s invasion of Ukraine.

It hit £3,549 in October and then £4,279 in January, compared with below £1,280 in previous years.

The government intervened to shield households and limit typical bills to £2,500, paying suppliers the difference between this rate and the price cap.

Estimates indicate the price guarantee, which is in place until next March, will cost the state £29.4bn.

Wholesale energy prices have fallen following a relatively mild winter and efforts to save energy in Europe but remain above historic norms.

Energy UK, a trade group representing energy retailers, warned that a price cap above £2,000 was set to become the “new normal”.

It said industry now needed to work with government on targeted support for customers next winter.

“We also need to press ahead with expanding our own sources of domestic, clean power and making more of our homes energy efficient,” said Energy UK, “as these will help bring down energy costs permanently for all customers.”