British Gas is to cut household gas prices by 5% in a move it says will benefit 6.8 million customers.
The energy supplier, owned by Centrica, said the move would on average cut annual energy bills by £37. It will apply from February 27.
British Gas said the cut reflected the recent fall in wholesale gas prices. It comes after energy suppliers have come under pressure from politicians and regulators to pass on lower costs to households.
British Gas said most of the gas being used in customers’ homes today was bought at higher prices over 2013/14 but wholesale costs for 2015 were now coming down to a level where the reduction could be passed on.
It said it would be keeping prices under review “for further movements up or down”.
Prime Minister David Cameron said in a message on Twitter: “It’s welcome to see British Gas cutting prices. We’ll continue to encourage energy firms to pass on falls in wholesale prices to customers.”
Chancellor George Osborne wrote on Twitter: “Good British Gas cutting prices. Real progress. Need to ensure falls in wholesale prices passed on so will continue to monitor very closely.”
The British Gas announcement comes a week after Big Six rival E.ON became the first to react to falling wholesale gas prices by announcing an immediate 3.5% cut in gas tariffs on January 13.
It follows pressure from Labour which proposed to give new powers to Ofgem to allow the regulator to force companies to pass on falls in the price of wholesale oil and gas to consumers.
Estimates suggested this could knock £136 off the average bill.
The announcement comes less than a month into the tenure of new Centrica chief executive Iain Conn, a former BP executive.
Mr Conn said: “We’ve been watching the significant moves in the international energy market extremely closely for some time, with the aim of helping customers with a price cut at the earliest possible opportunity.
“Operating in such a volatile market, no pricing decision is straightforward.
“We bear the responsibility of managing the risks of buying energy ahead on behalf of our customers, who value the predictability this brings.
“Taking this decision now, at a time of continuing uncertainty, shows our absolute commitment to pricing competitively, with customers at the forefront of our minds.”
Ian Peters, interim managing director of British Gas, said: “This price cut, worth £37 off the average annual bill, will help our customers keep their energy costs down at a time when many household budgets are still under pressure.”
Energy Secretary Ed Davey said: “This will be welcome news for British Gas customers - and after E.on’s price cut last week, customers of other energy companies will be asking when they’re going to see savings passed through.
“But while these bill cuts are welcome, the biggest savings can be made by switching to a better tariff, with many saving around £300 - or even more.”
Shadow energy secretary Caroline Flint said: “This shows that Ed Miliband was right to challenge the energy companies to cut their prices and pass on the falls in wholesale costs to consumers.
“But given gas prices have fallen by at least 20% a price cut of just 5% means consumers still aren’t getting the full benefit of falling wholesale prices.
“The next Labour government is committed to making big changes in our energy market: freezing energy prices until 2017 so that bills can fall but not rise, and giving the regulator the power to force energy companies to cut their prices when wholesale costs fall to all of their customers.”
The Prime Minister later told ITV: “This is excellent news and we should be absolutely clear that this price cut would not be happening if we’d listened to Labour and put in place their 20-month price freeze.
“If we’d frozen prices, you would not have got this benefit to hard-working families up and down the country who want to see their energy bills come down - and with this news, that’s what is going to happen.”
An Ofgem spokesman said: “This is a further step in the right direction. We have consistently called for suppliers to explain the growing gap between falling wholesale prices and retail prices.
“Cutting prices is an explanation that consumers will understand and in a competitive market we would expect others to follow suit.”