Responding to the record global gas prices that have sent almost 30 UK energy suppliers to the wall, Ofgem said the price cap on the most widely used tariff would rise to 1971 pounds a year from April, the same month that taxes rise and general inflation is set to peak at 6 per cent.
The Bank of England also raised interest rates again on Thursday, adding to the pressure on households.
The government will now provide state-backed loans to energy providers to spread the higher costs over five years, worth 200 pounds to consumers, while a 150 pound rebate on local taxes will also apply to about 80 per cent of households in England.
Governments across Europe have spent tens of billions of euros to shield consumers from record high energy prices, either removing taxes or supporting the most needy, after gas and power costs spiked when economies reopened from COVID-19 lockdowns.
In the UK, a six-month price cap has limited the immediate impact on consumers, forcing the pain on to suppliers instead, with more than 25 going out of business since the start of 2021.
Analysts said Sunak's attempt to delay passing on the full hit to consumers was a gamble however, with prices seen high well into next year and beyond, and with major European gas supplier Russia locked in a dispute with NATO over Ukraine.
Benchmark wholesale European gas prices rose more than 300 per cent last year.
Craig Lowrey at Cornwall Insight said the UK government's move was not a viable long-term solution.
"Without changes, we predict the winter cap will see payments rise to over 2000 pounds a year for the average customer. Any tools intended to reduce the immediate impact of these record high prices will mean that they are ultimately borne over a longer period," he said.
Jonathan Brearley, chief executive of Ofgem, said the energy market had seen an unprecedented increase in global gas prices, a once in a 30-year period event.
"Ofgem's role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas," he said in a statement.
Ofgem also said on Thursday it would look at changing how often it can update the price cap, to ensure it reflects the true cost of the market.
Unite, the country's biggest union, said the new price cap would turn the cost-of-living crisis into a catastrophe for millions of people.Â
"This will plunge at least one in four families in Britain into fuel poverty," it said.
Those households who use prepay metres, often among the poorest, will have the cap rise to 2017 pounds.