British Gas has lost about 1.5 million customers since 2004

The reduction follows after the firm came under fire in February when it raised household bills by 22%, despite seeing an 11% rise in annual profits.

Like all gas and electricity providers, British Gas has had to cope with higher wholesale prices over the past year.

Centrica said trading at the start of the 2006 was challenging, and that its wholesale costs were still rising.

'Escalating costs'

The company made the comments ahead of its annual general meeting on Friday.

British Gas customers have voted with their feet Energywatch spokeswoman See Centrica's share price

It warned that despite its 22% price rise in February, "the wholesale cost of gas and electricity continued to escalate".

Looking ahead, Centrica said that without a drop in wholesale energy prices, and at its existing tariff levels, British Gas' residential arm will be loss-making in 2006.

As a result, Centrica said its group-wide earnings for the full year should be towards the lower end of market expectations, sending its shares down by 2.7%.

Previous price rises at British Gas have prompted 1.5 million customers to leave the company since 2004.

It currently has around 17 million customers.

'Saving money'

A spokeswoman for gas and electricity watchdog Energywatch said British Gas customers had "voted with their feet".

"British Gas are admitting there has been an erosion of customers," she said.

"Many of these would probably have been loyal British Gas customers who have found by switching to other companies they can save money."

The increased cost of wholesale gas has been driven by falling production from the UK's North Sea fields.

It has been exacerbated by reduced supplies coming across from continental Europe, something both the European Commission and UK regulator Ofgem have blamed on lack of competition in European energy markets.