Centrica, the company that controls British Gas warned first-half operating profits would be “materially lower” than a year ago, adding that the high wholesale gas and electricity prices behind the slump in performance were set to continue into the second half.

In February Centrica said margins were under pressure and on Monday it said profit margins had been pushed below long-run targets. Full-year earnings per share are now seen at the lower end of market expectations.

In a trading update, the energy group said, ““we will take the necessary action to deliver reasonable margins in the retail business”. They added that gas and electricity prices had doubled in the last year.

The shares reversed earlier losses to trade 9¼p or 3.2 per cent, higher in London at 296¾p. The expectation of a profit warning saw the price lose some 4.3 per cent last week.

The cost increase moved gas suppliers to raise their tariffs earlier this year. The move came just a British Gas’s residential division was beginning to recoup customers who jumped ship when it raised its prices ahead of competitors last years and had major problems with its billing system.

British Gas said its tally of residential customers had risen above 16m again, when the full year results were posted in February, but in Monday’s interim statement it said the number had fallen to 15.9m.

The residential business accounted for 40 per cent of group revenues last year and 30 percent of profits.

The company said that in 2008 it upstream division’s performance would be very strong but it would be offset by lost sales. Also, the shift in business mix will increase the tax rate to around 55 per cent.

Centrica was already in the news this weekend as it emerged they are seeking to claim £182m in damages from Accenture who designed the company’s billing system that was introduced in 2006.

Customer complaints against British Gas soared, and it was forced to hire up to 2,500 additional staff at one point to deal with the problems created. Accenture described the claim as “baseless and without merit”.