The economic outlook for Scotland as we near the end of the year

Has inflation been tamed? The rate of increase of consumer prices peaked above 11% just over two years ago and had fallen to 4% at the start of this year.

Sir Keir Starmer and Rachel Reeves will be relieved by the absence of economic data over the festive season, given the recent poor set of figures.

The prime minister and chancellor will reach the end of the year, and the six-month mark since Labour's election victory, with an unwelcome set of recent economic data.

So let's review where we have got to, from a Scottish perspective, as we near the end of the year.

Has inflation been tamed?

The rate of increase of consumer prices peaked above 11% just over two years ago and had fallen to 4% at the start of this year.

The target level for price inflation, measured over the preceding 12 months, is 2%.

The rate fell below that level in September this year.

So it looks like it has been tamed, with the help of higher interest rates.

Since then, two sets of monthly figures from the Office for National Statistics (ONS), covering the whole UK, have shown inflation going up to 2.3% and then 2.6% in the year to November.

So it's much closer to target, but there are underlying pressures which mean it doesn't look tame yet.

Is pay rising too fast?

Unless you are very fortunate, your pay can never rise fast enough.

But for the economy, too much pay inflation can feed through to price inflation.

Average weekly pay across Britain has been rising at more than 5% - well ahead of price inflation.

HMRC, the tax collection agency, said its data show employees (not including the self-employed) have seen earnings go up by 7.6% in Scotland in only a year.

Some of that is to catch up with the loss of real spending power while prices were rising fast.

Some of it may be due to improved productivity, meaning you earn more because you produce more or add more value by what you do in a day's or a week's work.

But the British and Scottish economies have had poor productivity growth, and in the public sector, it's gone backwards.

Looking to next year, the pay bill will go up again, including a higher minimum wage and employers' National Insurance Contributions (NICs).

Some of that will be passed on to customers in higher prices, while it is also expected to dampen pay increases and to reduce profits.

How many people are unemployed?

The increased cost of employing people, through higher NICs, has weakened the labour market.

The number of vacancies being advertised, which was very high after the pandemic, has fallen.

The UK unemployment rate has gone up, though not by much.

However, the problem here is that the numbers have become unreliable, and more so for the nations and regions.

The sample of people in the Labour Force Survey is well below the level at which clear conclusions can be drawn below the UK level.

One big driver of government policy is the concern about large numbers of people who are unemployed due to long-term illness, including many who want to return to work.

But the data to support that is not clear.

The ONS is trying to correct that with different sampling techniques, but change is coming slowly.

When will interest rates come down?

Two cuts during 2024 have brought them from a 16-year high point at 5.25% to 4.75%.

The monetary policy committee of the Bank of England, made up of nine economists, has the task of bringing inflation to its 2% target.

But it has to be careful about choking off investment, consumer spending and economic activity, and causing a recession.

It has been concerned with the stubbornly high rate of core inflation, stripping out the volatile elements.

The committee is also wary of service sector price inflation, which is an indicator of continuing home-grown price pressures more than imported price increases due to international factors.

That helps explain why it voted last week to hold its base interest rate at 4.75%.

The Bank of England's governor, Andrew Bailey, said that further cuts were likely, but did not encourage people to think they would come quickly.

Economists in central banks are also nervous about the impact of Donald Trump returning to the White House and imposing tariffs on goods being imported into the USA.

That would probably fuel American inflation, and could have a contagious effect elsewhere.

As a result of expectations of interest rates staying higher a bit longer, the cost of fixed term borrowing, often used for mortgages, has gone up.

Why is the economy not growing?

The most recent estimate for the Scottish economy showed a contraction by 0.2% in output from the economy during October.

During August to October, it is estimated that the Scottish economy did not grow at all.

The equivalent UK figure for October was a 0.1% contraction.

That may have been