British Gas owner Centrica yesterday strongly hinted that energy bills could rise next year after saying there were strong signs of a "difficult environment" for energy firms in 2008.
The company said higher wholesale gas prices had hit margins at its residential division, which made profits of £533 million in the first half of 2007.
And a spokesman said Centrica was expecting the second half of 2007 to be profitable in total, but it was also getting ready for a bleaker future.
"Looking forward, the high wholesale prices will, if sustained, create a more difficult environment for retail energy suppliers in the UK going into 2008," he said. "It's very difficult to know where wholesale prices will go. We're keeping an eye on it."
The British Gas owner said its contracts had already started making a loss in the last three months, and that current fore-casts predicted things would get even worse financially for the company as wholesale prices continued to rise.
Centrica reduced gas prices for residential users twice this year, passing on 2006's lower prices to customers, but was widely expected to announce increased charges as the tightening of the wholesale market became apparent.
However, the firm said it was monitoring the situation carefully, and would be thinking before making a decision.
A successful 2007 at Centrica saw customer numbers rise by more than 900,000 after the firm cut prices in March and April.
British Gas now has 16 million residential users, although this figure is still lower than the total before the 2006 price rises. The firm said better customer service had helped to attract back customers, but it acknowledged that service levels still had room for improvement.
It said the rise in wholesale energy prices was down to the unreliability of supplies from Norway, and the amount of British gas being bought up by the Continent.
It also said reduced demand during last year's warm winter saw prices drop to an unnaturally low level.
Centrica owns gas fields and electricity plants, but has to top up with extra fuel and power on the wholesale market to meet customer demands.
It is currently looking into new production projects to reduce its reliance on the open market. It has launched exploration projects in countries including Norway, Nigeria, Trinidad and Egypt.
In July the firm terminated a £4 billion contract with Malaysian oil and gas giant Petronas after unspecified commitments between the two firms broke down.
But Centrica said it still expected its pre-tax profits at next year's full-year results to be in line with its expectations, with thinning margins for British Gas offset by Centrica's upstream performance.
The upstream assets are expected to perform well in the results, with 2007 hydrocarbon production levels likely to exceed 2006.
Its power generation segment is expected to be around break even in the second half, with the result impacted by lower realised spark spreads and higher levels of plant outages.
Centrica will be announcing its full year results on February 21. A spokesman for the firm said the company expected profits to be at around the £1.9 billion level.