An alarming rise in car insurance premiums is contributing to record-breaking inflation levels, according to the Office for National Statistics.

Premiums rose by 6.3 per cent in April alone, giving an annual rise of 26.1 per cent, making them second only to petrol as the fastest rising price category monitored by the ONS.

The Association of British Insurers attributed the rise, however, to the spiraling legal costs that have to back each claim.

A spokesman said: “Such costs add around 10 per cent to premiums paid by all motorists.

“Government figures have shown that, for personal injury claims under £10,000, for every £1 paid in compensation, a further 76p is paid in legal costs. And the smaller the claim, the more disproportionate these costs are."

Car insurance remains is a relatively small proportion of most household budgets, but the steep rise in premiums has added about 0.1 per cent to the overall annual inflation rate of 3.7 per cent.

The rise follows a period of relative inertia for car insurance premiums, caused by intense market competition. They stayed artificially low, despite pressure from increasing numbers and values of bodily injury claims such as whiplash. Fraudulent claims have also added to the rise, with insurers taking higher risks into account.

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