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>Andy Haldane repeated his dissent at his final meeting in favour of terminating asset purchases early. No one else appeared to share the view, which disappointed some hawkish market expectations. Asset purchases remain likely to complete as planned.</li>
<li>Near-term forecasts were upgraded, with the recent CPI surprise described as “material upside news”. Most MPC members seem to share our view that the inflation shock is transitory, and we still expect them to face an H2 disappointment in demand.</li>
<li>Operational preparations for a temporary period of negative rates are reported to be “on track” for “any point after August”. We still don’t expect it to be deployed. No mention of the sequencing debate means that the broader guidance may slip to Nov-21.</li>
</ul>


Andy Haldane repeated his dissent at his final meeting in favour of terminating asset purchases early. No one else appeared to share the view, which disappointed some hawkish market expectations. Asset purchases remain likely to complete as planned.
Near-term forecasts were upgraded, with the recent CPI surprise described as “material upside news”. Most MPC members seem to share our view that the inflation shock is transitory, and we still expect them to face an H2 disappointment in demand.
Operational preparations for a temporary period of negative rates are reported to be “on track” for “any point after August”. We still don’t expect it to be deployed. No mention of the sequencing debate means that the broader guidance may slip to Nov-21.


<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.


<ul>
<li>UK retail sales retreated by 2.1% m-o-m in May-21 as the rotation in food consumption started to unwind as lockdown lifts. Consumption isn’t otherwise rotating back away from the home and the winners from easing have already given back some gains.</li>
<li>An enthusiastic embrace of restored freedoms is already fading for hospitality while permanent closures are rising (0.6% of businesses in the past fortnight alone). Extended restrictions are only part of the problem but weigh on UK activity relative to the world.</li>
</ul>


UK retail sales retreated by 2.1% m-o-m in May-21 as the rotation in food consumption started to unwind as lockdown lifts. Consumption isn’t otherwise rotating back away from the home and the winners from easing have already given back some gains.
An enthusiastic embrace of restored freedoms is already fading for hospitality while permanent closures are rising (0.6% of businesses in the past fortnight alone). Extended restrictions are only part of the problem but weigh on UK activity relative to the world.


<ul>
<li>UK inflation increased again in May-21 to 3.3% on the RPI and 2.1% on the CPI. An unsustainably narrow prevalence of clothing discounts supported the rise. Ongoing imputation binds the RPI against capturing potential surge pricing as lockdown eases.</li>
<li>Our June RPI forecast is currently 0.4pp below the market fixing, which would require an extraordinary surge beyond historical precedents. Hard methodological constraints mean we see RPI market pricing as extremely vulnerable over the next few months.</li>
</ul>


UK inflation increased again in May-21 to 3.3% on the RPI and 2.1% on the CPI. An unsustainably narrow prevalence of clothing discounts supported the rise. Ongoing imputation binds the RPI against capturing potential surge pricing as lockdown eases.
Our June RPI forecast is currently 0.4pp below the market fixing, which would require an extraordinary surge beyond historical precedents. Hard methodological constraints mean we see RPI market pricing as extremely vulnerable over the next few months.


<ul>
<li>Unemployment declined, as we expected, to the likely trough ahead of cohort bias unwinding and furloughed workers being cut. The distribution of employment pain skews heavily towards the young and specific sectors, which carries persistent costs.</li>
<li>Surging headline wage growth exaggerates reflation pressures amid a modest impulse since it regained its pre-covid trend. Wage settlements have softened into a distribution as bad as the Brexit-depressed 2016 one, implying no persistent upside pressure yet.</li>
</ul>


Unemployment declined, as we expected, to the likely trough ahead of cohort bias unwinding and furloughed workers being cut. The distribution of employment pain skews heavily towards the young and specific sectors, which carries persistent costs.
Surging headline wage growth exaggerates reflation pressures amid a modest impulse since it regained its pre-covid trend. Wage settlements have softened into a distribution as bad as the Brexit-depressed 2016 one, implying no persistent upside pressure yet.


UK 2Y (GUKG2 INDEX)

BoE: Upgrades near Peak Optimism

In dovish news, no one joined Haldane's hawkish dissent. Still, near-term forecasts were upgraded, with the recent CPI surprise described as...

Phil Rush

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

UK: Retail Bodges Unscrewing Rotation

Food consumption is rotating back but other sectors aren't, depriving GDP of higher-value activity. Recovery in clothing and hospitality are...

Phil Rush

UK: RPI Poised to Disappoint the Market

Our June RPI forecast is currently 0.4pp below the market, which would require an extraordinary surge beyond historical precedents. Methodological...

Phil Rush

UK: Jobs and Wages Skew Poorly

Surging headline wage growth exaggerates reflation amid a modest impulse since it regained its pre-covid trend. The wage settlement distribution is...

Phil Rush