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Centrica warns of rising costs

Households are facing the prospect of more energy price hikes after British Gas owner Centrica warned its costs continued to mount.

The UK's biggest energy supplier dropped its standard electricity tariff by 5% in January after big rises in both gas and electricity bills over the summer.

But it warned that the trend for retail energy costs "remains upwards", with wholesale gas prices 15% higher for next winter and other costs set to add £50 to the cost of supplying the average household this year.

A round of price reductions by the UK's major suppliers earlier this year were not enough to offset price hikes over previous months, and utility bills have been a driver of the rising cost of living that has squeezed households.

British Gas, which has 15.9 million residential customers, increased gas bills by 18% and electricity by 16% in August.

As well as the rise in wholesale gas prices, Centrica said it was battling with higher costs for transport and distribution, metering, green levies and social costs.

Centrica's warning came as it said its own trading this year was in line with expectations, as higher wholesale gas and power prices benefited its "upstream" operations.

This helped offset the effect of mild weather and energy saving initiatives on its "downstream" business in the first quarter.

Cold and wet weather boosted demand in April, leaving average domestic gas consumption in the first four months of the year 1% higher than a year ago, although electricity was down 3%.

Residential customer numbers were broadly unchanged from the start of the year, helped by January's tariff cut, which it said re-established it as the cheapest major electricity supplier in Britain. Its business customers' average gas and electricity consumption was down by 1% and 4% respectively, and its profit margins were under pressure amid the recession.

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