Monthly economic brief: February 2023
The monthly economic brief provides a summary of latest key economic statistics, forecasts and analysis on the Scottish economy.
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Food prices continue to rise despite overall inflation falling in December.
- UK CPI inflation fell to 10.5% in December, down from 10.7% in November, and its recent peak of 11.1% in October.
- The fall over the month was particularly driven by motor fuels, with petrol prices now around 20% lower than their peak in July. Further downward contributions to the rate came from clothing and footwear and recreation and culture, although the annual inflation rate for these categories remained elevated (6.5% and 4.9% respectively).
- However, inflation continued to rise across a range of categories, including essentials such as food and non‑alcoholic drinks (16.8%) and restaurants and hotels (11.3%).
- Core inflation, which excludes food, energy, alcohol and tobacco, remained at 6.3% in December, unchanged from November. Core inflation has been around 6% since April 2022, and highlights that energy price rises have been the main driver of changes in inflation over this period. However, core inflation has risen from 1.4% at the start of 2021 and its persistence reflects that inflation has been broad based.
- Due to the further rise in underlying inflationary pressures, the Bank of England's Monetary Policy Committee (MPC) increased the Bank Rate by 0.5 percentage points to 4% in February; its tenth consecutive rate rise since December 2021 and up from 0.1% over this period.
- The increase in interest rates over the past year follows a similar pattern to the US Federal Reserve (currently 4.75%) and the European Central Bank (ECB) (currently 2.5%) as monetary policy has tightened to reduce inflationary pressures. Market expectations are that the Bank of England could raise interest rates further over the coming year to around 4.5%, while the Federal Reserve and ECB have indicated that there is potential for further tightening in the US and Euro Area.
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