E.on gas price cut puts pressure on British Gas, SSE and others

E.On has promised to cut residential gas prices by 5% next month, the first of the UK's Big Six energy suppliers to trim prices since Centrica's British Gas did so last August.

German-owned E.On said it would reduce its standard residential price of gas by an average of 5.1% from 1 February, giving £32 off an average annual gas bill.

This comes in the wake of criticism from regulator Ofgem last week that with the fall in wholesale energy prices, utilities were "overcharging in many cases".

On Wednesday, Ofgem chief executive, Dermot Nolan, said E.On's cut was "a step in the right direction".

"We have consistently called on suppliers to explain why retail prices are not falling and this price cut goes some way towards addressing that challenge."

But consumer groups said that given how far energy prices have fallen, residential prices should be slashed much further by the Big Six, which also include SSE, Spanish-owned Scottish Power, npower of Germany and EDF of France.

"With wholesale prices predicted to remain low this year, consumers should be seeing bill reductions of at least 10% - around £120 a year - on both gas and electricity," said Ann Robinson, the director of policy at price comparison site Uswitch.

With E.On, which announced a 3.5% price cut last January, announcing that it had also launched Britain’s cheapest energy tariff, a one-year dual fuel fixed product, other energy suppliers may soon be forced into a reaction.

Tony Cocker, chief executive of E.ON UK, said while the price the company paid for customers’ energy has fallen, "we also have to take account of managing the various other risks in the market which can change, and the fact that many of the other costs that we don’t control but do have to bear have increased or may increase".

He argued that once uncertainties and other factors had been taken into account, this prevented a larger drop in domestic prices, even though wholesale prices may translate to a drop in prices of under 10%.

"We will continue to keep all these factors under review,” he promised.

The UK's Competition and Market Authority is expected to report its findings from an investigation into energy suppliers in June.