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Economic outlook and inflation

Stay informed and discover our economic insights where we publish the latest economic outlooks,
focusing on the current issue of inflation and its wider effects.

We have put together some resources which contain industry updates and practical advice on this fast moving topic.

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The top risks for UK businesses in 2023

The Allianz Risk Barometer, an annual report identifying the top corporate risks for the year ahead, has identified the top risks for businesses in 2023. Here we look at the top five risks identified by UK participants.
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people looking at paper graps and a calculator

Higher and higher - inflation: Insurance Impacts

Whilst breaking a record is generally cause for celebration, there’s been little to celebrate about the recent record inflation rates in the UK. In September, UK inflation reached its highest level for 40 years.
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UK Real Estate Market - 2022 key trends and insights

Changes in macro-environment factors can have a direct impact on UK Real Estate. Our experts take a look at some key trends and insights currently impacting our Real Estate customers.
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UK Economic Outlook

Inflationary issues

December 2023

Since we published our September Insights, post-pandemic imbalances have started to normalise but high interest rates, continued economic uncertainty and low productivity means that although the UK is not currently in recession, growth is expected to slow over the remainder of this year and into 2024.

In his Autumn Statement, Jeremy Hunt outlined the UK’s financial policies for 2024 and these included a 2% cut in National Insurance rates, an increase to the National Living Wage, an increase to state pension and a 6.7% increase in benefits. These plans are designed to mitigate the impact of the cost-of-living crisis and offer employment and health support to over a million people.

Here we summarise the key issues, along with the relevant insurance implications, that are likely to be affecting some customers.

Take a look at our underinsurance hub, where you can find all of our insight articles, webinars, podcasts and guidance notes that can help address the risks of underinsurance. Also see our Managing claims inflation together summary, which shares the efforts we’re taking to manage motor claims inflation and what you, our brokers can do to support this.

Allianz Economic Insights - Inflationary Issues - December 2023 (PDF Download) 102 KB
Inflation and price indices

It’s expected that inflation will continue to slow and will be back to more normal levels, where prices rise by about 2% a year, by the end of 2025. (Source: Bank of England)

GDP growth in the UK is expected to improve modestly in 2024. (Source: Goldman Sachs)

On 2 November 2023, the Bank of England’s Monetary Policy Committee (MPC) left interest rates unchanged at 5.25%. (Source: House of Commons Library)

The estimated number of job vacancies in August to October 2023 was 957,000, a decrease of 58,000 from May to July 2023. (Source: Office for National Statistics)

The UK unemployment rate was 4.2% this quarter. This is largely unchanged from the last quarter. (Source: Office for National Statistics)

The incomes of typical working-age households were on course to be 4% lower in 2024-25 than they were in 2019-20. This is considerably worse than the 1% income fall recorded between 2005-06 and 2010-11. (Source: The Guardian)

The number of people living in absolute poverty is projected to rise by 300,000 next year, reaching 12 million in 2024-25. (Source: The Guardian)

Corporate insolvencies decreased to a total of 1,967 compared to August’s total of 2,319. However, when compared to September 2022’s figure of 1,688, there was an increase of 16.5%. (Source: Price Mann)

The rate of National Insurance will be cut by 2%, saving someone on an average salary £450 per year. (Source: The Guardian)

The “national living wage” will increase by more than a pound an hour from April to £11.44. It will also be extended to 21-year-olds. (Source: The Guardian)

Benefits will be increased by 6.7%, and there will be tougher requirements for those who claim them to look for work. (Source: The Guardian)

The state pension will be increased by 8.5%. (Source: The Guardian)

Jeremy Hunt says he will raise the local housing allowance, which has been frozen since 2020, in a measure worth £800 for some households next year. (Source: The Guardian)

Insurance impacts

  • Claims costs will likely go up in line with premiums and many will see their cost base rise faster than their revenues. (Source: Footman James)
  • High inflation is having a big impact on the broking market, particularly in the personal lines sector which has been hardest hit by the cost-of-living crisis. (Source: Insurance Times)
  • The cost-of-living crisis has made insurance much less affordable across all aspects of our society, as well as for the businesses that shape our economy. This will be of concern to brokers across all sectors of the market. (Source: Insurance Times)
  • The cost of living is at an all-time high and as a result we're seeing evidence of businesses either reducing their cover, or cutting it completely. All businesses are open to risk if they don’t have the correct level of insurance for their needs, and may be at risk of financial hardship as a result of being either underinsured or uninsured. (Source: Allianz article).

Supply chain disruption

According to the supply chain platform Orkestra, the top 6 supply chain risks for 2024 are:

1. Labour Shortages

2. Ocean freight bottlenecks

3. Increasing inflation

4. Global port congestion and warehouse shortages

5. Lack of sustainability

6. Resurgence of COVID-19 (Source: Orkestra)

Trade embargoes, labour shortages, ESG concerns and a rise in regulations continue to present significant risks to supply chains. (Source: Orkestra)

33% of supply chain leaders still list “shortage of critical parts or other goods” as the number one supply chain issue affecting their business. (Source: Womble Bond Dickenson)

93% of manufacturing businesses expect “under pressure” supply chains until 2025. (Source: Dealer Support)

More positively, forty per cent of manufacturers have reported an increase in UK suppliers, and 20% have expanded their supplier base in the EU, despite existing barriers. (Source: Dealer Support)

Insurance impacts

  • Supply chain disruption intensifies demand for business interruption insurance coverage and so businesses need to ensure they have the proper insurance coverage to protect against supply chain failure.

Energy crisis

A treasury task force explained on the 9th October how listed companies and financial firms will have to outline plans to cut carbon emissions in the transition to a 2050 net-zero economy. (Source: Price Mann)

It’s predicted that Britain’s wholesale power prices will rise from an average of £96.64 per megawatt-hour this year, to £129/MWh next year. This is due to higher gas prices because of the war in Ukraine. (Source: The Guardian)

By 2030, offshore wind will make up 26% of the UK’s installed electricity capacity, up from about 13% today. Meanwhile, the share of gas power plants will fall from 27% of the UK’s total power capacity to 13% by 2030. (Source: The Guardian)

The Energy Price Guarantee will remain in place as a safety net until the end of March 2024 in case energy prices increase above £3,000 per year. (Source: Gov.UK)

In the Autumn Statement, Jeremy Hunt announced that there would be about £1m investment in aerospace companies and businesses working on green technologies. (Source: The Guardian)

Insurance impacts

  • The insurance of renewable energy investments and their role in creating a more sustainable future will present a key business opportunity for the insurance sector. (Source: Bloomberg Adria)
  • It’s likely that in the future, the energy businesses that are not green will not be able to obtain insurance services. (Source: Bloomberg Adria)
  • By providing better terms for sustainable projects, the insurance industry will also play its role in the devolvement of the renewable energy sector. (Source: Bloomberg Adria)

The cost and shortages of food and supplies

The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 4.7% in the 12 months to October 2023, down from 6.3% in September. (Source: Office for National Statistics)

Food and non-alcoholic beverage prices rose by 0.1% between September and October 2023 following a 0.1% decline the previous month; this compares with a rise of 2.0% between the same two months a year ago. (Source: Office for National Statistics)

Supermarket shortages will continue in 2024 as a result of climate disasters. (Source: The Independent)

Insurance impacts

The cost of materials

The price of building materials fell for the fourth consecutive month despite suffering shortages in key products as output across the sector fell. (Source: Homebuilding and Renovating)

With supply chain disruptions and increased demand hitting the industry after the pandemic, a steadier supply of raw materials should now start to consistently drive prices down.  (Source: Insight DIY)

Building costs are continuing to rise for subcontractors despite a fall in material prices. (Source: Construction News)

Insurance impacts

  • Because the cost and demand of raw materials, parts and labour has increased significantly, insurers may increase customer's insurance premiums to cover the rise. (Source: Footman James)
  • Shortages in construction materials and labour may mean that insurers face delays when attempting to resolve claims. (Source: PropertyCasualty360)

 

Construction

The overall value of work commencing on site fell by a quarter compared to the previous three months, finishing 35% lower than 2022 levels. (Source: Specification Online)

High interest rates and a weak economy continue to depress the market. As a result, many projects have stalled, or failed to start. (Source: Specification Online)

Construction costs are forecast to rise just over 3% in the year to 3Q2024, while tender prices are expected to increase by just over 2% in the same period. (Source: Building Cost Information Service)

Construction materials experienced the greatest price increases and decreases in the 12 months to September 2023. (Source: Homebuilding and Renovating)

Construction output volumes fell due to a decline in demand for houses. (Source: Homebuilding and Renovating)

Construction output is likely to continue to stagnate into 2024. (Source: RICS)

In 2024 and 2025, construction markets in the north of England look set to outperform London and the south. This is all as a result of the government’s Levelling Up Fund, with £2.3 billion being shared amongst schemes in the second round of investment. (Source: Insight DIY)

Insurance impacts

  • Construction firms will need to make sure they have the correct business interruption insurance in place to cover them in the event of stalled or delayed projects.
  • The degraded condition of RAAC and the presence of asbestos in public buildings will result in more insurance claims. (Source: RPC)

Motor

The price of used car purchases fell by 3.6% in the year to October, compared with a fall of 1.2% in the year to September. (Source: Office for National Statistics)

The average price of petrol rose by 1.5 pence per litre between September and October 2023 to stand at 155.1 pence per litre in October 2023. (Source: Office for National Statis-tics)

Diesel prices rose by 4.8 pence per litre this year to stand at 162.2 pence per litre in Octo-ber 2023. (Source: Office for National Statistics)

2024 will see a roll-out of more public EV chargers. This mirrors further growth in electric car sales. (Source: What Car?)

The number of new cars sold in the UK grew by 14.3% in October 2023, compared with the same month last year. (Source: What Car?)

In October 2023, sales of electric vehicles (EVs) grew for the 42nd month in succession. 23,943 joined the roads – that’s roughly one in five new car registrations. (Source: What Car?)

Insurance impacts

  • Rising car repair costs and an increase in disaster-related claims are significant reasons why car insurance rates are surging for many drivers. (Source: Footman James)
  • Motor insurance premium rates are expected to rise this year and next to keep pace with the rate of inflation and the mounting costs of materials. Premiums are expected to rise by 16% over 2023 (£74 per policy on average), with a further 11% rise in 2024 (£59 per policy on average). (Source: Ernst and Young)
  • The cost of cover could increase 14% this year, fuelling industry concern over premium cancellations. (Source: Financial Times)
  • Rising insurance costs are affecting consumer sentiment and behaviour, with 45% of those surveyed between ages 18 and 34 saying they’ve thought about going without auto in-surance as a result—including 17% of respondents who say they are already driving un-insured. (Source: Deloitte)

 

Commercial property

House prices will keep falling during 2024, according to forecasts from Lloyds Bank and property website Zoopla. (Source: The Times)

However, despite prices falling by between 3% and 5% during the past year, Nationwide reported a small increase in the month to October. (Source: The Times)

Despite a slow start to the year, momentum within London’s £5 million-plus residential market ramped up in the third quarter of 2023, with a total of 145 property sales (new build and second hand), up from 137 in Q2, and 108 in Q1 2023. (Source: Savills)

Activity in both the residential and commercial property markets remain subdued. (Source: RICS)

Forecasts suggest a 5% increase in rents across the UK in 2024. (Source: JLL)

Rent affordability limits have been reached in several regions of the UK. (Source: Landlord Today)

For annual rent growth, Greater London is now one of the worst-performing regions in the UK at just 1.8 per cent annual growth. This is due to a large increase in supply year-on-year. (Source: Landlord Today)

Insurance impacts

  • Commercial property premiums rose by an average of 20.4%—the first time that rates rose greater than 20% since 2001. (Source: Deloitte)
  • Interest in property insurance will increase due to the pressure to plan better for unforeseen events and disasters, and to be better prepared to handle the financial consequences of the climate change. (Source: Bloomberg Adria)
  • Businesses will need to make sure they lessen the financial impact in case of property damage or loss by having the correct property insurance in place. 

Further reading

  • Allianz Economic Research – Allianz global research analysing economic and industrial developments.
  • Underinsurance – Resources, information and guidance to help customers understand the issue of underinsurance.
  • Ludonomics – Ludovic Subran, Allianz Group’s Chief Economist, publishes a weekly update on Allianz markets, macro, sector and insurance.

Inflationary issues

September 2023

Since we published our June insights the cost of living has continued to rise, both in the UK and across the world, and the government’s independent forecaster said that household incomes - once rising prices are taken into account - would drop by 6% this year and next.

It’s not all bad news though, according to the Office of National Statistics, the UK economy grew by 0.2% in the second quarter of 2023 and business investment in the UK increased by 3.5% over the same period. As a result, the UK will avoid going into a recession.

Here we summarise the key economic issues, along with the relevant insurance implications.

Also take a look at our underinsurance hub, where you can find all of our insight articles, webinars, podcasts and guidance notes that can help address the risks of underinsurance.

Allianz Economic Insights - Inflationary Issues - September 2023 (PDF Download) 78 KB
*Please note the latest data available for all metrics in this report as at September 2023

Inflationary issues

June 2023

Three months on from our previous Economic Insights report published in  March, inflationary pressures continue to shape insurance trends and put pressure on customers.

While the global economy is expected to continue to recover in 2023, the pace of growth is anticipated to be slower than in previous years due to the ongoing challenges to supply chain disruptions and the rise in inflation.

The UK is set to be one of the worst performing economies in the world this year, according to the International Monetary Fund. This is due to high gas prices, rising interest rates and a sluggish trade performance. However, the Bank of England governor Andrew Bailey has stated that the UK is no longer heading into an immediate recession.

Here we summarise the key issues, along with the relevant insurance implications.

Also take a look at our underinsurance hub, where you can find all of our insight articles, webinars, podcasts and guidance notes that can help address the risks of underinsurance.

Allianz Economic Insights - Inflationary Issues - June 2023 (PDF Download) 90 KB
*Please note the latest data available for all metrics in this report as at June 2023

Inflationary issues

March 2023

The levels of disruption that we saw at the end of 2022 (see our December Insights) look set to continue in 2023. Economic pressures, food shortages, the war in Ukraine and further strike action across a range of sectors are still affecting supply chains, and food and energy prices have risen further.

However, the Bank of England expects inflation to fall from the middle of this year and Prime Minister Rishi Sunak said halving inflation by the end of 2023 is a government priority.

Here we summarise the key issues, along with the relevant insurance implications, that are likely to be affecting some customers.

Also take a look at our underinsurance hub, where you can find all of our insight articles, webinars, podcasts and guidance notes that can help address the risks of underinsurance.

Allianz Economic Insights - Inflationary Issues - March 2023 (PDF Download) 128 KB
*Please note the latest data available for all metrics in this report as at 20 March 2023

Inflationary issues

December 2022

Since publishing our July Insights we’ve seen some major political and economic developments in the UK, including the resignations of two Prime Ministers in quick succession, a disastrous mini-budget predicted to have cost the UK £30bn, further strike action and a recession.

Climate change continues to impact households across the UK with many areas now experiencing extreme flooding and, in addition, the energy crisis and the rising cost of living are significantly impacting manufacturers, suppliers and consumers.

Here we summarise the key issues, along with the relevant insurance implications that are likely to be affecting some customers.

Allianz Economic Insights - Inflationary Issues - December 2022 (PDF Download) 1 MB
*Please note the latest data available for all metrics in this report as at 8 December 2022

Inflationary issues

July 2022

Inflation, the energy crisis and supply chain disruption were key themes in our April insights, and remain so three months on. Since then, there's been further major developments in the macroenvironment, including the UK Prime Minister's resignation, substantial disruption in the travel industry, from the RMT rail strike - the most significant in 30 years - to the chaos ensuing from the Europe-wide strikes and cancellations in the airline industry.

Most recently, the UK has experienced record-breaking temperatures and the first ever red warning. Here we summarise the key issues, along with the relevant insurance implications that are likely to be affecting some customers.

Allianz Economic Insights - Inflationary Issues - July 2022 (PDF Download) 926 KB

Inflationary issues

April 2022

We talked about disruption within global supply chains in our previous claims inflation guides, and Russia’s invasion of Ukraine has significantly exacerbated this issue. Six weeks on, it’s further impacting the production of semiconductors, cars, as well as the price of food and building materials. This combined with the China-U.S. trade war, pandemic and climate-related events is accelerating the rate of inflation. Here we summarise the key issues, along with the relevant insurance implications that are likely to be affecting some customers.

UK Economic Outlook - Inflationary Issues - April 2022 (PDF Download) 805 KB

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