Scottish economic bulletin: May 2025

Inflation

Inflation rose to 3.5% in April reflecting an increase in energy and regulated prices.

• The annual consumer price inflation rate rose from 2.6% in March to 3.5% in April. The increase was mainly driven by rising housing and household services prices (rising by 7.8%, up from 1.8% in March), transport prices (3.3%, up from 1.2%) and recreation and culture (3.1%, up from 2.4%).^[2]
• There continues to be a notable difference in goods and services price inflation, with services remaining more elevated and rising to 5.4%, its highest level since August 2024, while goods price inflation rose from 0.6% to 1.7% (its highest rate since January 2024). Core inflation (excludes energy, food, alcohol and tobacco) rose to 3.8% (from 3.4%).

• The Bank of England (BoE) forecast inflation to rise to 3.7% in September (3.5% on average over the third quarter), reflecting the increase in energy and water bills, indexation of bills such as broadband and phone charges and the impact of higher employer NICs. Thereafter, their baseline projection is for inflation to gradually fall back to around 2% by the start of 2027.
• The Bank’s Monetary Policy Committee reduced the Bank Rate from 4.5% to 4.25% in May, reflecting the underlying progress in disinflation and that there are a range of risks to inflation in both directions.^[3]