Analysts are predicting that car insurance premiums in the UK will soar following an announcement by Norwich Union that it is raising its prices for motorists.

The decision by the leading insurer to raise its prices across the board by an average of 16 per cent has sparked widespread speculation that other companies will follow suit.

Premiums will increase by between six and 40 per cent overall, with young men hit hardest by the rises, and the company expects other insurers to follow its example.

The move is a bid at ending a motor insurance price war that has driven down profit margins in recent years. The insurer claims that car repair bills have increased by six per cent over the past year, while the cost of personal injury claims is up by ten per cent.

David Ross, Norwich Union spokesman, told the Guardian: "The insurance industry has kept premiums fairly static for the past couple of years while the cost of claims has gone up. While in the short term you can carry that kind of loss, it's not sustainable."

Norwich Union, a subsidiary of UK insurance giant Aviva, has stated that it accepts that the decision could cost it market share, but that it was essential in order to ensure continuing profitability.

A recent poll by the Centre of Economic and Business Research (CEBR) found that four out of ten drivers believe that their car is an essential part of their lives, while eight per cent would continue to drive regardless of cost.

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