Millions of British Gas customers are poised to feel a sharp rise in their fuel bills after the Centrica-owned company said soaring oil prices and dwindling North Sea reserves had forced it to increase prices by 14.2 per cent.

British Gas said the price hike will take effect from September 19, although it will be introducing a £60 rebate designed to protect 250,000 of its most vulnerable customers.

Centrica noted that the huge increase in the cost of wholesale fuel will "significantly reduce" profits at British Gas in the second half of the year. It added that group earnings for the full year will be at "the lower end of market expectations".

British Gas said that buying electricity to cover its supply needs for the second half of the year is currently 61 per cent more expensive than the same period last year and 43 per cent higher than the market price during the first half.

Buying gas is 50 per cent more expensive than the second half of last year and 31 per cent more costly than during the first half, British Gas said.

The oil price has surged in recent months and hit $70 a barrel in the wake of the devastation caused by Hurricane Katrina. British Gas pointed to a report from Global Insight that found that each $10 increase in the price of a barrel of oil added an extra £50 to the average domestic gas bill.

As British Gas said it would bear some part of the increased wholesale fuel costs itself, Mark Clare, managing director, said: "We are no longer an energy island - spiralling world oil prices are now having an unprecedented impact on the cost of gas as the UK is now dependent on imports.

"In these difficult times it is more important than ever that our customers take action to save energy and so reduce their bills. British Gas already invests £130 million a year in energy efficiency measures for customers and we will now offer additional incentives for those that are prepared to take action."

Today's price increases by British Gas follow recent similar moves by Powergen, owned by E.ON of Germany, and EDF Energy, the French owned of British electricity businesses.

One million customers who have signed up to the company's price protection plan will not see their bills increase until April 2007. British Gas said it would now be launching a new fixed price contract, enabling consumers to lock in their energy costs until 2010 at no extra cost.

The group also urged European Union member states to open up their markets to UK suppliers in order to help prevent further price rises. Most British suppliers are unable to access gas services of mainly monopoly owned continental suppliers.

USwitch.com, an online price comparison service, claimed that British Gas's price rise will add £104 to the average consumer's gas and electricity bill and said this was the biggest single price increase by any supplier so far this year.

Alan Tattersall, director of home services at uSwitch.com, said: "There’s no doubt today’s price rise by British Gas will come as a real blow to customers, particularly those customers who’ve already paid the price for remaining loyal to them following last year’s record hikes. Anyone still with British Gas would do well now to shop around for a better deal."

Shares in Centrica lost 3.25p to 261.5p on the news, a fall of nearly 1.25 per cent.

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