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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.

UK Economic Outlook

Inflationary issues

July 2025

Since we published our March Insights, Trump's 50% tariffs on steel and aluminium have sparked concern in the UK and Europe. The UK government is under pressure to finalise a trade deal with the US to protect its steel industry, which represents 7% of UK exports to the US. Economists warn of severe job losses, with previous tariffs costing the US 75,000 jobs. Efforts are underway to minimise the impact on trade and industry. (Source: BBC)

Following reciprocal strikes, Iran's parliament has approved a measure to potentially close the Strait of Hormuz, a vital global trade route through which more than a fifth of the world's daily oil supply passes. This move raises significant concerns for global trade. (Source: The Guardian)

Rising inflation, due to increasing labour costs and energy prices, is expected to remain above the Bank of England’s target of 2% for the rest of 2025.

In April, the minimum wage was raised for all groups. More than three million workers will now be better off; however, this could lead to cutbacks in hiring for some businesses. 

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 2025 (PDF Download) 82 KB
Inflation and price indices

The inflation rate is forecast to rise to 3.7% by the third quarter of 2025. (Source: House of Commons Library)

Increased government spending in the wake of the Autumn Budget will support growth in the second half of 2025. (Source: House of Lords Library)

Bank of England base rate is currently 4.25%, following a cut in May 2025 from 4.5%. Whilst no change was made in June, further reductions are expected later in the year, with analysts forecasting a potential drop to around 3.75% by year-end. (Source: Reuters)

Mortgage rates are expected to continue to fall throughout the remainder of 2025, ending the year at around 3.75%. (Source: Home Owners Alliance)

The Israel-Iran conflict has reintroduced energy price volatility, impacting inflation forecasts and poten-tially delaying further rate cuts. Oil prices tumbled by 5% after a ceasefire, but concerns remain over adherence to the agreement and its effect on global energy costs. (Source: BBC)

Insurance impacts

  • Lower mortgage rates might encourage more home purchases, which will increase demand for home insurance as new owners seek coverage. 
  • Insurers with substantial real estate investments may reassess their asset allocations in response to lower mortgage rates. 
  • Economic uncertainty and low productivity continue, meaning growth is expected to slow. To save on costs, some businesses are dropping aspects of their insurance cover. (Source: Allianz)

Supply chain disruption

Global instability in the wake of the US tariffs has altered supply chains and added to inflated pressures worldwide. (Source: Allianz)

Business interruption, including supply chain disruption, has been identified as one of the top risks for businesses in 2025. (Source: Allianz)

Businesses continue to face pressure to adopt sustainable practices, which will impact decisions regarding supply chains.

Insurance impacts

  • It is likely that insurers will see an increase in business interruption insurance claims because of supply chain disruption.
  • Businesses struggling to meet contractual obligations due to supply chain delays may face lawsuits, increasing demand for liability insurance. (Source: Allianz)
  • Businesses can mitigate the impact of supply chain pressures by having flexible logistics strategies and the correct levels of business interruption insurance cover in place.

Energy crisis

Natural catastrophes and climate change are set to present two of the biggest risks to businesses in 2025. (Source: Allianz)

It is predicted that energy prices will drop in mid-2025, before increasing again in 2026. (Source: Money Saving Expert)

Efforts to achieve clean power by 2030 are driving investments in green energy sources such as hydro-gen and electrification. (Source: Energy UK)

Geopolitical tensions, particularly the Israel-Iran conflict, are amplifying short-term energy price volatility, especially in oil markets, increasing pressure on inflation and impacting insurance exposure. Fluctuating oil prices are contributing to economic uncertainty globally. (Source: BBC)

Insurance impacts

  • The insurance industry continues to be hard hit by the escalating frequency and severity of global climate events. 
  • Energy price volatility is affecting commercial property and motor insurance. (Source: Allianz)
  • Extreme weather events linked to the energy crisis could make some risks uninsurable, threatening eco-nomic stability. (Source: Allianz)
  • Proactive risk management will help businesses minimise the impact of extreme climate-related events.

The cost and shortages of food and supplies

Long-term risk from climate change will pose significant challenges to some domestic food production in 2025 and beyond.

New regulations, including border controls and trade tariffs, could impact food availability and pricing. (Source: Just Food)

The UK imports around 40% of its food, which makes it highly dependent on global trade stability. (Source: Gov.UK)

Insurance impacts

  • The rising cost of food and supplies may result in people being less able to afford insurance premiums.
  • It’s likely that restaurants, food suppliers, and retailers may face disruptions leading to increased business interruption insurance claims. 
  • Businesses that are reliant on food imports may see higher insurance costs due to supply chain instability. 

The cost of materials

Material costs are expected to rise in 2025 and 2026 as inflation drives up costs and supply chain disrup-tion adds pressure.

High demand for construction materials, combined with labour shortages, will push up prices.

Global trade tensions and tariffs are affecting availability and pricing, and this looks set to continue into 2026 and beyond. (Source: Allianz)

The shift towards eco-friendly construction is driving up material costs. In the UK, sustainable materials such as timber, steel, cement and insulation are projected to increase by approximately 15% by 2030, driven by green regulations, net-zero standards and wage pressures. (Source: BCIS/UKGBC)

Insurance impacts

  • As material costs rise, insurers may increase customers’ insurance premiums.
  • Insurers must account for the higher price of sustainable materials in rebuilding and repair costs.
  • Some insurers are introducing discounts or custom policies to encourage sustainable construction practices. 

Construction

The US tariffs placed on construction materials like steel (25%) and aluminium (10%) have driven up costs for builders. Additional tariffs on lumber, cement, and machinery have also increased budgets. (Source: BCIS)

Due to US tariffs, many suppliers are redirecting materials to alternative markets, leading to construction project delays and material shortages. (Source: World Construction Today)

The UK construction industry will need nearly 47,900 workers annually, about 239,000 in total, to meet demand over the next five years. (Source: CITB)

Despite economic uncertainties, new work output is expected to grow by 19% over the forecast period. (Source: BCIS)

Insurance impacts

  • Rising building costs increase the expense of repairs and claims, leading to higher insurance premiums.
  • As sustainability standards evolve, insurers will need to adjust coverage for eco-friendly materials and energy-efficient designs. (Source: Allianz)
  • AI-driven and automated construction methods introduce new risks, and this will require changes and adaptations to insurance policies. (Source: Allianz)

Motor

The Government’s Zero Emissions Vehicle (ZEV) mandate requires that more than a quarter of new car registrations must be zero emission by the end of 2025.

New car registrations are projected to surpass 2 million units in 2026. (Source: SMMT)

In 2025 and 2026, diesel market share is expected to drop to 4.4% and petrol to 41.1%. (Source: SMMT)

Insurance impacts

  • US tariffs are expected to push up the cost of car parts in the UK, making repairs more expensive. It is likely that insurers will pass these costs onto customers.
  • Owners of electric cars are no longer exempt from Vehicle Excise Duty (VED). This means that many drivers have seen an increase in their car tax.
  • More vehicles on the road means higher insurance policy uptake, which will drive market expansion.
  • Government policies supporting zero-emission mandates may influence insurance regulations and incentives. (Source: Allianz)

Commercial property

From 2025 onwards, properties to be newly let must achieve an EPC rating of C or higher. 

GDP is expected to accelerate in 2025, benefiting commercial real estate and driving occupational de-mand. (Source: Savills)

The push for green buildings and AI-driven efficiency will shape future commercial developments. (Source: Allianz)

Investors are showing renewed interest in prime shopping centres and retail warehouse parks. (Source: Savills)

Insurance impacts

  • The EPC mandate will likely increase demand for property insurance policies covering energy-efficient renovations. 
  • As a consequence of the EPC mandate, insurers may introduce specialised coverage for upgrades and retrofitting projects. (Source: Allianz) 
  • Tariffs on construction materials like steel and aluminium are making home repairs and replacements more expensive. This is likely to lead to higher home insurance rates.

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

March 2025

Since we published our December Insights, tensions between the US, Russia and the Ukraine have intensified after a heated exchange at the White House in February between President Donald Trump and President Volodymyr Zelensky. On 19 January, Israel and Hamas agreed to a hostages-and-prisoners exchange and armistice to end the Gaza war.

UK inflation jumped sharply from 2.5% in December 2024 to 3% in January 2025. In February, The Bank of England cut interest rates from 4.75% to 4.5%, their lowest level for 18 months.

From April 2025, the minimum wage for all groups will rise which will benefit more than three million workers, however, for some businesses this could lead to cut backs in hiring.

Despite concerns that AI will replace workers, research from the World Economic Forum suggests that AI will create approximately 97 million new jobs by the end of this year. (Source: World Economic Forum)

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 - March 2025 (PDF Download) 74 KB

Inflationary issues

December 2024

Since we published our September Insights, Labour has delivered its first budget in 14 years, Donald Trump was elected as president of the United States, and the United Nations Climate Change Conference, COP29, was held in Azerbaijan. 

In October 2024, tensions in the Middle East between Israel and Hamas escalated into an Israeli invasion of Lebanon, and on 17th October, IDF ground forces killed Hamas leader Yahya Sinwar.  

Global economic growth remains weak by historical standards but is showing signs of stabilisation. The annual UK inflation rate was 1.7% in November 2024. 

We’ve also seen a rapid acceleration in the use of artificial intelligence (AI) across the globe and 15% of UK businesses are now using some form of AI technology. 

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.

Allianz Economic Insights - Inflationary Issues - December 2024 (PDF Download) 90 KB

Inflationary issues

September 2024

Since we published our June Insights many significant political and economic changes have taken place around the world. In the UK, a Labour government was elected in a landslide general election victory, and in America, President Joe Biden announced he would not seek re-election and Donald Trump survived an assassination attempt.

Additionally, we’ve seen increased tensions in the Middle East between Israel, Iran and Yemen and a leadership change in Iran following the death of President Ebrahim Raisi in a helicopter crash in May 2024.

The US presidential election takes place in November 2024 and the outcome will affect foreign policy and international trade, which will impact the UK and Europe.

Global economic growth remains weak by historical standards but is showing signs of stabilisation. The annual UK inflation rate was 2.2% in July 2024, its lowest level in nearly three years.

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 - September 2024 (PDF Download) 77 KB

Inflationary issues

June 2024

Since we published our March insights, we’ve continued to see prices increase but the Office for Budget Responsibility expects living standards to recover more quickly than previously forecast and real household disposable income per person should recover its pre-pandemic peak by 2025-26.

2024 is set to be the biggest election year in history, with an unprecedented number of general elections taking place across the world. This will generate regulatory and policy uncertainty in the short and medium term.

The annual inflation rate is forecast to fall to the Bank of England’s 2% target in the coming months and to 1.9% in 2026. There was economic growth of 0.4% for the first three months of 2024 and 0.2% from April to June.

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.

Allianz Economic Insights - Inflationary Issues - June 2024 (PDF Download) 75 KB
*Please note the latest data available for all metrics in this report as at June 2024

Inflationary issues

June 2024

Since we published our December insights, the war between Israel and Hamas has intensified and the war between Russia and Ukraine shows no sign of resolution. It’s anticipated that major 2024 elections around the world may further destabilise the global economy.

The UK’s annual inflation rate is expected to continue falling in 2024, though more gradually than in 2023, due to lower energy prices and reduced inflation in consumer goods and food. The annual inflation rate remains at 4%, which is unchanged from December.

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.

Allianz Economic Insights - Inflationary Issues - March 2024 (PDF Download) 88 KB
*Please note the latest data available for all metrics in this report as at March 2024

Inflationary issues

2023

Allianz Economic Insights - Inflationary Issues - December 2023 (PDF Download) 102 KB
*Please note the latest data available for all metrics in this report as at December 2023
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
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
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

2022

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
Allianz Economic Insights - Inflationary Issues - July 2022 (PDF Download) 926 KB
UK Economic Outlook - Inflationary Issues - April 2022 (PDF Download) 805 KB
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