Energy supplier Ovo Energy is axing plans to increase costs for its variable rate customers due to a drop in the price it pays for gas and electricity.

However, analysts warn customers of the big six firms, who represent the vast majority, not to get excited as it's unlikely the giants of the market will reduce prices soon.

The big six – British Gas, EDF, Eon, Npower, Scottish & Southern and Scottish Power – have all raised prices over the past few months by up to 19%, bringing misery for millions of households already hard-pressed due to soaring inflation.

Ovo had announced in October a rise in variable rate gas and electricity tariffs by 3.5%, due on 1 January 2012. This would have taken its variable tariff from £1,120 a year for the typical household to £1,159.

Analyst firm Utilyx says the price energy firms pay now for the gas and electricity they will sell in summer 2012 (as most buy in advance) has dropped by 10% since September, largely due to the mild weather.

The price they pay now for gas they sell to consumers in December has fallen by 22% compared to the price paid in September to also sell to consumers in December.

MoneySavingExpert.com creator Martin Lewis says: "I think we should give Ovo a mini round of applause. While its planned price rise was far smaller than others, this is an important gesture.

"It shows that energy companies can be nimble and responsive – and should add to the pressure on the big six to ensure that when their costs go down, ours follow."

'Larger firms won't cut prices'

Andrew Horstead, from Utilyx, explains that the big six are unlikely to cut costs soon as they may have already bought most of the energy they plan to sell to us over the coming months.

In contrast, small firms often don't buy their energy so far in advance.

Horstead says: "The big six buy some of their energy three or four years in advance whereas the likes of Ovo buy at more updated prices so they can take greater advantage of falls in wholesale costs.

"There may also be an element of competition where Ovo thinks it can steal some market share."

Ovo managing director Stephen Fitzpatrick says: "Since we announced the planned increase in our variable prices, wholesale costs have fallen.

"In response, we're delighted to announce we will not go ahead with the planned increase."

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