Chief Economist, Heteronomics

Phil Rush

Chief Economist

Heteronomics

Heteronomics represents a different kind of economics. We believe analysis should delve into the details of what is really going on, rather than using overly simplistic assumptions to quick-sell stories. Independence from myopic institutional pressures allows us to focus on the realities underlying your asset allocation decisions, without the conflicts of the old market structures. Heteronomics targets the themes driving UK asset prices, offering the benefits of depth, independence and ultimately price.

UK-centric macro research

Macroeconomics

<ul>
<li>Unemployment disappointed consensus expectations but matched our forecast of 4.8% in May-21. Bullish biases from lockdown surveys and support schemes are unwinding. We still expect the former to drive a slight rise to 4.9% in June.</li>
<li>About 10% of employees either remain out of work or on furlough, with ~3pp of those on part-time furlough where usage has been sticky and clogging up clearing in the labour market. Rapid headline wage growth is mostly about base and mix effects, though.</li>
<li>Residual restrictions are reinforcing behavioural changes that spread activity differently to pre-covid and the reallocation of resources between sectors, companies and areas should cause frictional weakness. We still forecast a UR peak of 6% in Q4.</li>
</ul>


Unemployment disappointed consensus expectations but matched our forecast of 4.8% in May-21. Bullish biases from lockdown surveys and support schemes are unwinding. We still expect the former to drive a slight rise to 4.9% in June.
About 10% of employees either remain out of work or on furlough, with ~3pp of those on part-time furlough where usage has been sticky and clogging up clearing in the labour market. Rapid headline wage growth is mostly about base and mix effects, though.
Residual restrictions are reinforcing behavioural changes that spread activity differently to pre-covid and the reallocation of resources between sectors, companies and areas should cause frictional weakness. We still forecast a UR peak of 6% in Q4.


<ul>
<li>UK inflation surged again in Jun-21 to 3.9% on the RPI and 2.5% on the CPI. The outcome was far above economist expectations but closer to the market fixing. Although imputation bound as we expected, upside risks broadly crystalised, joined by new ones.</li>
<li>Car prices are belatedly tracking alternative indicators, which we now incorporate into our baseline. UK clothing prices appear to have temporarily stepped away from Europe.</li>
<li>Rising underlying inflation pressures reduce stimulus’s dovish cover but probably won’t bring a premature end. We expect the CPI and RPI to slow in July to 1.9% and 3.5%.</li>
</ul>


UK inflation surged again in Jun-21 to 3.9% on the RPI and 2.5% on the CPI. The outcome was far above economist expectations but closer to the market fixing. Although imputation bound as we expected, upside risks broadly crystalised, joined by new ones.
Car prices are belatedly tracking alternative indicators, which we now incorporate into our baseline. UK clothing prices appear to have temporarily stepped away from Europe.
Rising underlying inflation pressures reduce stimulus’s dovish cover but probably won’t bring a premature end. We expect the CPI and RPI to slow in July to 1.9% and 3.5%.


<ul>
<li>UK GDP growth in May-21 was half the consensus forecast as it slowed to 0.8% m-o-m despite the ongoing relaxation of lockdown restrictions. Declines were widespread among sectors still below pre-covid peaks, offsetting the arts and hospitality rebound.</li>
<li>As with the re-opening last year, an initial surge in output has rapidly lost momentum. We remain pessimistic about the damage done to the economy during the lockdowns, which will become clearer as the recovery slows this year.</li>
<li>The UK’s relatively long and strict lockdown has made it a global laggard, and daily mobility data imply the recovery is also now underperforming. The change in health secretary may reduce risks of further damage in Q4, but legacy costs will remain.</li>
</ul>


UK GDP growth in May-21 was half the consensus forecast as it slowed to 0.8% m-o-m despite the ongoing relaxation of lockdown restrictions. Declines were widespread among sectors still below pre-covid peaks, offsetting the arts and hospitality rebound.
As with the re-opening last year, an initial surge in output has rapidly lost momentum. We remain pessimistic about the damage done to the economy during the lockdowns, which will become clearer as the recovery slows this year.
The UK’s relatively long and strict lockdown has made it a global laggard, and daily mobility data imply the recovery is also now underperforming. The change in health secretary may reduce risks of further damage in Q4, but legacy costs will remain.


Founder

Olivier Desbarres

Exacting. Excellent. Exceeding. Exemplary.

4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

FX & Rates

With England due to play Germany in the last-16 round of the Euro Championships in a few hours time, now is a good time to revisit the Sterling-Euro exchange rate. 
Football fans will be hoping for a pulsating sporting encounter rich in history while traders will be hoping that the GBP/EUR cross, which is currently trading in the middle of a narrow 7-week range of only 1.4% and has exhibited very little volatility, will throw up some excitement of its own in the second half of the year. 
Our core scenario is that the GBP/EUR cross will fall short of setting the FX world alight but will appreciate slightly in Q3, for three inter-connected reasons.
First, international travel restrictions in the UK and Eurozone, while admittedly fluid, are likely to result in far smaller net outbound tourism from the UK this summer than compared to previous “normal” years, in our view. 
If this holds true, the typically very large UK tourism deficits, including with Eurozone countries, are likely to be far smaller than normal in July-August, which will could in turn up-end Sterling’s typical seasonal weakness versus the Euro in these two months.
Second, we think these respective travel restrictions will help boost the UK economy, particularly if as per our core scenario the British government lifts all, or at least most remaining social distancing restrictions on 19th July. The UK is on track to have double-vaccinated 80% of its adult population by mid-July, with Eurozone countries on average still about six weeks behind according to our estimates.
The upshot is that the GDP growth differential between the UK and Eurozone as measured by the Composite PMI, which has narrowed in the past two months, will widen again in coming months and push GBP/EUR higher, in our view.
Finally, as a result of this (expected) relative pick-up in growth and inflation dynamics in the UK and Eurozone we think the risk is tilted towards the Bank of England’s monetary policy stance becoming increasingly less dovish relative to the European Central Bank’s.

With England due to play Germany in the last-16 round of the Euro Championships in a few hours time, now is a good time to revisit the Sterling-Euro exchange rate. 
Football fans will be hoping for a pulsating sporting encounter rich in history while traders will be hoping that the GBP/EUR cross, which is currently trading in the middle of a narrow 7-week range of only 1.4% and has exhibited very little volatility, will throw up some excitement of its own in the second half of the year. 
Our core scenario is that the GBP/EUR cross will fall short of setting the FX world alight but will appreciate slightly in Q3, for three inter-connected reasons.
First, international travel restrictions in the UK and Eurozone, while admittedly fluid, are likely to result in far smaller net outbound tourism from the UK this summer than compared to previous “normal” years, in our view. 
If this holds true, the typically very large UK tourism deficits, including with Eurozone countries, are likely to be far smaller than normal in July-August, which will could in turn up-end Sterling’s typical seasonal weakness versus the Euro in these two months.
Second, we think these respective travel restrictions will help boost the UK economy, particularly if as per our core scenario the British government lifts all, or at least most remaining social distancing restrictions on 19th July. The UK is on track to have double-vaccinated 80% of its adult population by mid-July, with Eurozone countries on average still about six weeks behind according to our estimates.
The upshot is that the GDP growth differential between the UK and Eurozone as measured by the Composite PMI, which has narrowed in the past two months, will widen again in coming months and push GBP/EUR higher, in our view.
Finally, as a result of this (expected) relative pick-up in growth and inflation dynamics in the UK and Eurozone we think the risk is tilted towards the Bank of England’s monetary policy stance becoming increasingly less dovish relative to the European Central Bank’s. 

Sterling Leads Euro 1-0 at Half-Time in Dull Encounter but Could Extend Advantage

<ul>
<li>Six months on from signing the UK-EU Trade and Cooperation Agreement, political strains are showing, especially in Northern Ireland. The delicate four-way East-West-North-South equilibrium has been knocked out of balance by the NI Protocol.</li>
<li>The worsening political situation in NI highlights the risks of ongoing trade friction between the UK and its largest trading partner, and introduces an extra element of risk into the UK body politic at a time when other strains are already apparent.</li>
</ul>


Six months on from signing the UK-EU Trade and Cooperation Agreement, political strains are showing, especially in Northern Ireland. The delicate four-way East-West-North-South equilibrium has been knocked out of balance by the NI Protocol.
The worsening political situation in NI highlights the risks of ongoing trade friction between the UK and its largest trading partner, and introduces an extra element of risk into the UK body politic at a time when other strains are already apparent.


United Kingdom

The British Pound Sterling is the official currency of The United Kingdom. 

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UK: Jobs and UR Distortions Unwinding

Bullish biases from lockdown surveys and support schemes are unwinding. We still expect another unemployment rate increase to 4.9% in June before...

Phil Rush

UK: Inflation Jumps with Underlying Lift

Rising underlying inflation pressures reduce the BoE's dovish cover for stimulus but probably won’t bring a premature end. We expect the CPI and...

Phil Rush

UK: Recovery Loses Momentum Early

UK GDP growth in May-21 was half the consensus forecast as it slowed to 0.8% m-o-m despite relaxing restrictions. As with the re-opening last year,...

Phil Rush

Sterling Leads Euro 1-0 at Half-Time in Dull Encounter but Could Extend Advantage

GBP/EUR in narrow range in past 7 weeks as UK has lost macro & social distancing lead over Eurozone. But GBP/EUR could rally in Q3 as summer...

Olivier Desbarres

UK: Brexit Shifts 4 Points of NI Compass

The worsening political situation in NI highlights the risks of ongoing UK-EU trade frictions and introduces an extra element of risk into the UK...

Phil Rush

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