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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

Allianz Insights July 2026

Since we published our March Insights, the global economy has faced renewed tests as the war in the Middle East continues to disrupt growth and disinflation. Global growth is projected to slow in 2026 and 2027.

Global supply chains remain fragile after new Red Sea disruptions have pushed shipping costs higher. Wage pressures and conflict-driven commodity spikes are likely to continue into 2027 and beyond.

UK borrowing costs have reached a new 18-year high and the pound has fallen due to UK political uncertainty. The Bank of England has warned that interest rates could rise as the war fuels inflation.

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

Allianz Economic Insights - July 2026 89 KB
Inflation and price indices
Inflation and price indices

The Bank of England’s base rate is currently 3.75%, and the inflation rate is 2.8% with a target of 2%. (Source:  Bank of England)

The Bank of England is expected to hold interest rates into 2027.  (Source:  Financial Reporter)

UK growth is expected to cool in 2026 as earlier policy-driven boosts fade.(Source:  Allianz)

GDP growth is forecast to pick up slightly in 2027, but the economy has limited capacity to grow above +1.5%. (Source:  Allianz) 

UK mortgage rates for 2026 – 2027 are expected to remain elevated, shaped by inflation pressures, geopolitical shocks and Bank of England policy. (Source: Home Owners Alliance)

In April 2026, the UK National Living Wage (21+) increased to £12.71 per hour.  This will benefit 2.7 million low paid workers but could result in hiring freezes from some businesses. Source: BBC) 

Business insolvencies are still above pre-pandemic averages but are expected to decline through 2027 thanks to looser monetary and financial conditions, as well as easing wage and price pressures. (Source: Allianz)

Insurance impacts

The cost-of-living crisis has increased the financial pressure on households and businesses, so people are less able to self-fund repairs or replacements, leading to increased insurance claims and overall claims inflation. 

Insurance claim inflation remains elevated across all sectors, and 58% of insurers have seen a rise in claim cost and omplexity over the past year. (Source: Gallagher Bassett) 

UK insurers in 2026 face rising claims costs, softening rates, regulatory pressure, and intensified competition. These pressures are expected to persist or intensify into 2027. 

During times of economic stress, insurance regulators are focusing on fair value, particularly for vulnerable consumers. 

Insurers continue to face rising claims costs, driven by increasing claim complexity, regulatory scrutiny, and climate-driven risk. (Source: Gallagher Bassett)

Supply chain disruption

38% of businesses are concerned about international conflict impacting supply chains next year. (Source: Office for National Statistics)

Conflicts in the Middle East, Ukraine, and tensions involving the US and China are increasing supply chain volatility and unpredictability. (Source: Allianz)

The rerouting of container ships around the Cape of Good Hope due to Red Sea insecurity has added weeks to transit times. (Source: Logistics Handling)

44% of businesses saw higher import costs in March 2026 vs. March 2025. (Source: Office for National Statistics)

Supply chain paralysis was viewed as the biggest risk to businesses in the next 5 years. (Source: Allianz)

Insurance impacts

Rising cyber-attacks targeting suppliers create increased insurance risks. 

There is an increasing demand for businesses to have supply chain risk cover. 

Supply chain delays and lack of materials extend the time it takes to rebuild or repair damaged property leading to increased business interruption claims. 

Supply chain disruption is a persistent driver of claims inflation. (Source: MGAA)

Energy crisis

The UK’s household energy bills remain +35% above pre-crisis levels in 2026, and forecasts show further rises in late 2026 and early 2027 due to Middle East conflict and high wholesale gas prices. (Source: House of Commons Library)

Sanctions on Russian energy imports will remain in place through 2026, keeping markets tight. (Source: Total Energies)

Energy-related supply chain disruption is a top global business risk. (Source: Allianz)

Electricity demand is rising sharply driven by the increasing use of electric vehicles, heat pumps and data centres and AI workloads. (Source: Electric Insights)

Electricity demand has risen for two consecutive years for the first time in over 20 years. This increases pressure on prices, especially during peak periods. (Source: Electric Insights)

Firms are scaling back their sustainability ambitions in 2026, focussing on supply chain measures. (Source: Allianz)

Insurance impacts

The shift away from fossil fuels and the volatility caused by the energy crisis requires insurers to tighten underwriting for carbon-intensive industries, reassess risk models for energy-dependent sectors and increase scrutiny on clients’ transition plans. (Source: Allianz)  

Businesses are adapting or increasing their insurance protection to address sustainability risks. (Source: Allianz)

The cost and shortages of food and supplies

Food prices are on track to be 50% higher in November 2026 than at the start of the cost-of-living crisis in 2021. (Source: The Guardian)

The Food and Drink Federation now expects food inflation to hit 9-10% by late 2026. This is driven by Middle East conflict, energy costs and shipping disruption. (Source: The Food and Drink Federation)

The UK could face food shortages, including chicken and pork, by the summer if the Middle East conflict continues. (Source: BBC)

UK farmers have seen fertiliser costs rise by up to 70% due to the Strait of Hormuz blockade. (Source:  Independent)

Insurance impacts

UK insurers can expect to see rising claims costs as inflation in feed, fertiliser and fuel pushes up the replacement costs of insured goods. 

Economic stress often leads to increased opportunistic fraud or deliberate loss events as businesses struggle financially. 

The cost of materials

60% of firms are worried about supply chain disruption and rising energy and commodity prices. (Source: Allianz)

95% of construction professionals expected material costs to rise over the next 12 months. (Source: BCIS)

Insurance impacts

Ongoing construction material inflation requires more frequent cost reassessments and updated rebuild evaluations.  

Supply chain disruptions continue to amplify cost uncertainty, increasing the risk of underinsurance and driving claims inflation.

Construction

Building costs are forecast to rise 15% over the next five years. (Source: BCIS)

There is strong demand for net-zero compliant office retrofits.  (Source: The Green Register)

Construction continues to face one of the most acute labour shortages of any UK sector. (Source: Construction Industry Training Board)

Rising wage costs are now the primary driver of construction cost inflation. (Source: Construction Management) 

Stronger forecasting and contingency planning are now essential across the construction and property sectors. (Source:  Construction Owners)

Insurance impacts

Labour shortages increase both repair times and costs per hour, feeding directly into claims inflation. 

New construction methods and innovations in sustainability require insurers to update their underwriting models. 

Property claims inflation remains elevated due to volatile construction material prices. 

Key building materials such as timber, steel, glass, plasterboard and insulation have risen sharply since 2021, pushing up rebuild costs and increasing the risk of underinsurance. (Source: Specification Online) 

Construction inflation, driven by elevated material and labour costs, is expected to remain a key driver of claims severity into 2027. (Source: Allianz)

Motor

UK petrol and diesel costs are already elevated and subject to volatility due to geopolitical tensions. This is likely to continue into 2027. (Source: What Car?)

The average cost of filling a 55-litre family car with petrol has increased by £14 since the start of the Middle East conflict, with diesel up by £27. (Source: BBC News)

UK automotive output is strongly impacted by trade tensions over the new US tariff framework as export-oriented output declined in 2025. (Source: Allianz)

The 2026 outlook for automakers remains under pressure due to profitability concerns, uncertain trade conditions and new competition coming from China. (Source: Allianz)

Modern vehicles increasingly rely on ADAS (lane assist, emergency braking, sensors) which makes repairs more costly, driving insurance claims inflation.

Insurance impacts

Electric vehicles cost on average 25% more to repair and 20% more to settle as losses, pushing up average insurance claim severity. (Source: Insurance Business Magazine) 

Claims costs are expected to rise faster than premiums, driven by expensive vehicle technology, elevated parts prices, and broader economic pressures.  

Claims inflation has significantly outpaced general economic inflation, creating sustained pressure on insurers and consumers. 

Labour shortages in the motor repair sector are leading to higher insurance costs.(Source: Car Aftermarket Trader)

 

Commercial property

The Renters’ Rights Act came into force on 1 May 2026. This aims to give more stability and security to people who rent from private landlords. (Source: Gov.UK)

Under the Renters’ Rights Act landlords are now required to have a valid legal reason to evict a tenant. Some landlords have warned they could leave the market because of the changes. (Source: BBC News)

Mortgage rates remain high by pre 2022 standards, keeping housing demand subdued. (Source: Financial Reporter)  

About 53% of UK mortgage holders are expected to see their payments rise, but around 25% of those who fixed at higher rates  should see their payments fall, despite recent increases in rates. (Source: BBC News)

Insurance impacts

Claims severity has increased, and will continue to increase, as repairs take longer and cost more. (Source: Procurato) 

Commercial property claims inflation is being pushed up by high construction costs, supply chain disruption, labour and materials inflation, and underinsurance.

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 2026

Since we published our December insights, UK GDP growth has slowed but there is no recession. Weak consumer spending continues but targeted investments in green energy, data centres and infrastructure means a low but stable growth out-look for 2026-2027.

In February, the US Supreme Court ruled against President Trump’s imposition of global tariffs, stating that Trump had exceeded his authority by using a law reserved for national emergencies to impose them. Trump responded by announcing new global tariffs of 15% which would be implemented using a different legal route.

In March, the US and Israel took action against Iran, and the situation continues to evolve with rising tensions across the Middle East.

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

Allianz Economic Insights - March 2026 90 KB

Inflationary issues

December 2025

Since we published our October Insights, the UK economy has stagnated with persistent inflation, high interest rates, weak business investment and global trade uncertainty. 

In November’s Autumn Budget, Chancellor Rachel Reeves unveiled measures aimed at stabilising public finances, tackling inflation and funding public services. These included freezing Income Tax and National Insurance thresholds and capping Cash ISA allowances. 

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

Allianz Economic Insights - December 2025 79 KB

Inflationary issues

October 2025

Since we published our July Insights, US tariffs continue to impact global trade and the average US tariff rate has surged to 15.8%, up from 2.3% at the end of 2024. 

Shifting global trade policies and geopolitical tensions have caused businesses to adjust their supply chains and delay capital investment decisions. However, despite external pressures the Office for National Statistics reports that over half of UK businesses are holding prices steady. 

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 - October 2025 130 KB

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

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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