Scottish economic bulletin: February 2024

Inflation

Inflation rose slightly in December to 4% as core inflation remained unchanged.

• UK inflation rose to 4% in December 2023, up slightly from 3.9% in November, and is the first increase in inflation since earlier in the year in February.^[2]
• The increase in December was mainly driven by a rise in alcohol and tobacco inflation (from 10.2% to 12.9%), largely reflecting the increase in tobacco duty announced in the UK Autumn Statement. There was also upward pressure from categories such as recreation and culture (from 5.3% to 5.7%) and clothing and footwear (from 5.7% to 6.4%) offsetting downward contributions in categories such food and non-alcoholic drinks (from 9.2% to 8%), and restaurants and hotels (from 7.5% to 7%).
• Core inflation, which excludes energy, food, alcohol and tobacco, was unchanged in December at 5.1%. This partly reflects the current persistence of services prices inflation which rose from 6.3% to 6.4% while goods prices inflation continued its downward trend from 2% to 1.9%.

• Overall, annual consumer price inflation rates are on a downward trend, however the price index level remains 21% higher than at the start of 2021, illustrating the rapid increase in the overall price level facing consumers over this period.
• In response to recent inflation and wider economic data and forecasts, the Bank of England’s Monetary Policy Committee (MPC) maintained the Bank Rate at 5.25% in February, unchanged since August following fourteen consecutive rate rises from December 2021 when it was 0.1%.^[3]

• The Bank of England judge that risks from domestic inflation pressures are now more balanced than they have been, however risks to its inflation projection are skewed to the upside in the near term due to recent geopolitical factors and are keeping under review for how long Bank Rate should be maintained at its current level.^[4]