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>There is a growing optimistic consensus that many households will treat the pandemic impact on savings as a windfall to spend. Falling annuity rates offset the effect of rising assets for retirement income, although that has partly unwound recently.</li>
<li>The post-pandemic policy toolkit presents new risks that household balance sheets need to reflect through more housing services and a higher precautionary savings buffer.</li>
</ul>


There is a growing optimistic consensus that many households will treat the pandemic impact on savings as a windfall to spend. Falling annuity rates offset the effect of rising assets for retirement income, although that has partly unwound recently.
The post-pandemic policy toolkit presents new risks that household balance sheets need to reflect through more housing services and a higher precautionary savings buffer.


<ul>
<li>Inflation disappointed expectations again in Mar-21 as it only increased to 0.7% y-o-y on the CPI and 1.5% on the RPI, although the latter was precisely in line with our forecast (index at 296.9). Food and recreation prices were the main sources of weakness.</li>
<li>The CPI outlook seems slightly softer than we previously thought. Further increases remain likely, aside from a July blip, with the peak slightly over 2% in Nov-21. Subdued median inflation suggests underlying pressures are not reflating excessively.</li>
</ul>


Inflation disappointed expectations again in Mar-21 as it only increased to 0.7% y-o-y on the CPI and 1.5% on the RPI, although the latter was precisely in line with our forecast (index at 296.9). Food and recreation prices were the main sources of weakness.
The CPI outlook seems slightly softer than we previously thought. Further increases remain likely, aside from a July blip, with the peak slightly over 2% in Nov-21. Subdued median inflation suggests underlying pressures are not reflating excessively.


UK: Subdued Reflation Pressures in Mar-21

<ul>
<li>Households have accumulated £150bn of excess savings during Covid, fuelling bullish narratives. Overall, households are not declaring an intent to spend this windfall, though, with many experiencing severe pain and a net balance planning to cut back.</li>
<li>Savings are accumulating among those least likely to spend it. Almost half plan to hold them, with about a third investing it, fuelling the housing boom, while only 7% intend to spend the gain. We remain relatively gloomy on GDP growth, especially in H2 2021.</li>
</ul>


Households have accumulated £150bn of excess savings during Covid, fuelling bullish narratives. Overall, households are not declaring an intent to spend this windfall, though, with many experiencing severe pain and a net balance planning to cut back.
Savings are accumulating among those least likely to spend it. Almost half plan to hold them, with about a third investing it, fuelling the housing boom, while only 7% intend to spend the gain. We remain relatively gloomy on GDP growth, especially in H2 2021.


<ul>
<li>UK wage growth far exceeded expectations again in Dec-20, mostly due to revisions, with the level well-above its pre-Covid trend. There was a blip in Jan-21 with median wages and vacancies falling, but the latter has rebounded so far in Feb.</li>
<li>The unemployment rate increased to 5.1% and remains on course to peak at about 7%. We still see productivity bearing the brunt of adjustment. Reports of emigration would also imply a potential GDP hit but are likely to be misreading distortions, in our view.</li>
</ul>


UK wage growth far exceeded expectations again in Dec-20, mostly due to revisions, with the level well-above its pre-Covid trend. There was a blip in Jan-21 with median wages and vacancies falling, but the latter has rebounded so far in Feb.
The unemployment rate increased to 5.1% and remains on course to peak at about 7%. We still see productivity bearing the brunt of adjustment. Reports of emigration would also imply a potential GDP hit but are likely to be misreading distortions, in our view.


UK 2Y (GUKG2 INDEX)

UK: Saving the Precautionary Motive

Falling annuity rates offset the rise in savings for retirement incomes. The policy toolkit presents new risks that household balance sheets need...

Phil Rush

UK: Subdued Reflation Pressures in Mar-21

Further UK inflation increases remain likely, aside from a July blip, with the peak slightly over 2% in Nov-21. Subdued median inflation suggests...

Phil Rush

UK: Savings Are Not for Splurging

Almost half of savers plan to hold gains, with about a third investing it, fuelling the housing boom, while only 7% intend to spend the gain. We...

Phil Rush

UK: Labour Market Blips in Lockdown

Wages have boomed but there was a blip in Jan-21 with median wages and vacancies falling, albeit with the latter rebounding in Feb. Recent reports...

Phil Rush