Energy bills are set to rise by almost £700 after regulator Ofgem raised the price cap on suppliers, allowing them to pass on the costs of record rises in wholesale prices.

The increase will hit discretionary spend on things like holidays as households struggle with bills.

However, chancellor Rishi Sunak said households would receive around £350 in help. He told parliament there would be a £200 discount from October, repayable in £40 instalments over the next five years.

There will also be a £150 council tax rebate in April for those in bands A to D. “This will not need to be repaid,” Sunak told parliament.

He said another £150 million in discretionary funds would be given to local authorities for those with extra needs.

There was further bad news today for around one-third of householders who have a mortgage, with a Bank of England rate rise to 0.5% and signs of more to come in order to curb rising inflation.

The increase will only affect those on variable rates and will mean only a small increase in monthly repayments, but may add to consumer caution about spending.