E.ON has become the first major energy supplier to react to falling wholesale prices by cutting gas tariffs by 3.5%.
The price reduction, which is equivalent to taking £24 off an average household gas bill or two weeks’ gas use, will take place with immediate effect.
Around two million out of E.ON’s 4.5 million domestic customers are expected to automatically benefit from the price cut while others will be eligible to switch to the new tariff.
The company has also introduced what it claims is the cheapest energy tariff in the UK – a one-year, dual fuel fixed product with an average annual price of £923.
Tony Cocker, Chief Executive of E.ON said: “Today we’ve taken steps so we can make a price cut on our standard gas tariff at the same time as offering customers, existing and new, the chance to sign up to the UK’s lowest priced energy tariff. As we have always said where it is possible we will try to pass savings on to our customers.”
Ofgem welcomed the news as a “small step in the right direction”.
A spokesperson added: “We have consistently called for suppliers to explain the growing gap between falling wholesale prices and retail prices. Cutting prices is an explanation that consumers will understand and in a competitive market we would expect others to follow suit.”
Labour leader Ed Miliband recently said he wants Ofgem to get new powers forcing suppliers to lower energy bills when wholesale prices fall.