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>UK retail sales surged by 9% in Apr-21 to 3% above the between-lockdown peak as store reopening caused clothing to recover. The overall economy is likely to lag well behind and below it. Although the initial bounce is bullish, a warning siren screamed into May.</li>
<li>Consumers do not see the better economic environment benefitting them, with the forward-looking gap repeating the 2009 experience. That foreshadowed four years of GDP disappointment and declining rate expectations, ending with this sentiment gap.</li>
<li>Once again, the balance sheet damage of economic depression is being ignored. Savings balances are better for some, but the distribution constrains their usefulness and are offset by the likelihood that this will be a relatively jobless recovery thanks to furlough.</li>
</ul>


UK retail sales surged by 9% in Apr-21 to 3% above the between-lockdown peak as store reopening caused clothing to recover. The overall economy is likely to lag well behind and below it. Although the initial bounce is bullish, a warning siren screamed into May.
Consumers do not see the better economic environment benefitting them, with the forward-looking gap repeating the 2009 experience. That foreshadowed four years of GDP disappointment and declining rate expectations, ending with this sentiment gap.
Once again, the balance sheet damage of economic depression is being ignored. Savings balances are better for some, but the distribution constrains their usefulness and are offset by the likelihood that this will be a relatively jobless recovery thanks to furlough.


<ul>
<li>UK inflation surged in April-21, especially on the RPI. Full imputation of airfares has more of an impact there, plus it includes booming house prices. Clothing prices were the main source of underlying upside news, albeit stoked by an early collection date.</li>
<li>The ONS’s plans for normalising its data collection mean imputation is set to last a lot longer than we previously assumed, especially in airfares. This shifts some of the seasonality for the year around a path that is raised by the upside April surprise.</li>
</ul>


UK inflation surged in April-21, especially on the RPI. Full imputation of airfares has more of an impact there, plus it includes booming house prices. Clothing prices were the main source of underlying upside news, albeit stoked by an early collection date.
The ONS’s plans for normalising its data collection mean imputation is set to last a lot longer than we previously assumed, especially in airfares. This shifts some of the seasonality for the year around a path that is raised by the upside April surprise.


<ul>
<li>The UK unemployment rate declined again to 4.8% in Mar-21 amid a repeat of the downward bias seen during the first lockdown. Most of that unwound over the following quarter and is likely to again. However, high vacancies imply a lower UR peak of ~6.2%.</li>
<li>Headline wage growth is set to surge over the next few months on base effects. The return of more low wage jobs is likely to then weigh on this growth rate over H2. Furlough continues to lock up labour to create undesirable underlying cost pressures.</li>
</ul>


The UK unemployment rate declined again to 4.8% in Mar-21 amid a repeat of the downward bias seen during the first lockdown. Most of that unwound over the following quarter and is likely to again. However, high vacancies imply a lower UR peak of ~6.2%.
Headline wage growth is set to surge over the next few months on base effects. The return of more low wage jobs is likely to then weigh on this growth rate over H2. Furlough continues to lock up labour to create undesirable underlying cost pressures.


<ul>
<li>UK GDP exceeded expectations in March as it rebounded by 2.1% m-o-m, limiting the Q1 decline to 1.5% q-o-q. That performance is one of the worst in the world, compounding previous economic pains from the UK’s relatively tight and long lockdown restrictions.</li>
<li>Education drove the rise as school’s re-opened, with health extending its surge amid vaccination spending. The extent of that and the boom in construction output surprised. </li>
<li>Many businesses have remained reluctant to resume trading at the start of May. About 10% remain temporarily closed, similar to December, and about 1% have permanently shut since then. Persistent pains will only be revealed after the mechanical rebound.</li>
</ul>


UK GDP exceeded expectations in March as it rebounded by 2.1% m-o-m, limiting the Q1 decline to 1.5% q-o-q. That performance is one of the worst in the world, compounding previous economic pains from the UK’s relatively tight and long lockdown restrictions.
Education drove the rise as school’s re-opened, with health extending its surge amid vaccination spending. The extent of that and the boom in construction output surprised. 
Many businesses have remained reluctant to resume trading at the start of May. About 10% remain temporarily closed, similar to December, and about 1% have permanently shut since then. Persistent pains will only be revealed after the mechanical rebound.


<ul>
<li>The BoE MPC voted to keep all its policy levels unchanged in May, although Chief Economist Andy Haldane dissented in favour of lowering the gilt purchase target by £50bn. That would effectively mean terminating purchases in Aug-21 instead of Nov-21.</li>
<li>Forecast revisions raise GDP and squash the unemployment rate. Potential GDP matches the demand upgrade to maintain an economic balance in 2yrs when inflation is also seen at target. Tweaked guidance removes the apparent dovish near-term bias.</li>
<li>Gilt purchases have been tapered, as we expected, to stretch them until November. A return of restrictions and failure to recover GDP may yet prompt another extension.</li>
</ul>


The BoE MPC voted to keep all its policy levels unchanged in May, although Chief Economist Andy Haldane dissented in favour of lowering the gilt purchase target by £50bn. That would effectively mean terminating purchases in Aug-21 instead of Nov-21.
Forecast revisions raise GDP and squash the unemployment rate. Potential GDP matches the demand upgrade to maintain an economic balance in 2yrs when inflation is also seen at target. Tweaked guidance removes the apparent dovish near-term bias.
Gilt purchases have been tapered, as we expected, to stretch them until November. A return of restrictions and failure to recover GDP may yet prompt another extension.


UK 2Y (GUKG2 INDEX)

UK: Retail Therapy Before Gloom Repeats?

Consumer's expected outperformance has turned in a 2009 signal repeat. That foreshadowed four years of GDP disappointment and declining rate...

Phil Rush

UK: RPI Dressed-Up with More Make-Up

UK inflation surged in April. Plans for normalising the price survey mean imputation is set to last a lot longer than we assumed, especially in...

Phil Rush

UK: Jobs Misleadingly Locked-Up in 1Q21

The UK unemployment rate declined again to 4.8% in Mar-21 amid a repeat of the downward bias seen during the first lockdown. Most of that unwound...

Phil Rush

UK: Less of a Global Laggard in Q1

The UK's Q1 performance is one of the worst in the world, despite beating expectations. Persistent pains will only be revealed after the mechanical...

Phil Rush

BoE: Activist Leaves the Hawkish Roost

Haldane dissented to lower the gilt purchase target by £50bn. Forecast revisions raise GDP and squash the unemployment rate. Guidance removes the...

Phil Rush