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>The embattled UK government has binned almost all its announced tax cuts and its policy platform. Most were reversing previous hikes, so policies go full circle. </li>
<li>Household energy prices will surge for at least some in Apr-23. We hope it will merely cap the units of cheap energy to avoid stoking inflation statistics and monetary policy. </li>
<li>Cancelling fiscal stimulus reduces hawkish pressure on the BoE. It does not negate the realised volatility discouraging UK investments nor fix the macroeconomic outlook.</li>
</ul>


The embattled UK government has binned almost all its announced tax cuts and its policy platform. Most were reversing previous hikes, so policies go full circle. 
Household energy prices will surge for at least some in Apr-23. We hope it will merely cap the units of cheap energy to avoid stoking inflation statistics and monetary policy. 
Cancelling fiscal stimulus reduces hawkish pressure on the BoE. It does not negate the realised volatility discouraging UK investments nor fix the macroeconomic outlook.


<ul>
<li>UK market misfunctioning has forced the BoE to intervene in-between meetings. It will buy gilts every day until 14 October without an overall limit.</li>
<li>That aggressive intervention is reassuringly responding to the real issue rather than blindly following commentators calling for rate hikes to match dysfunctional pricing.</li>
<li>The BoE has postponed its active gilt sales until 31 October. However, the forced U-turn within a week should highlight the risk of its worryingly non-state-dependent policy.</li>
</ul>


UK market misfunctioning has forced the BoE to intervene in-between meetings. It will buy gilts every day until 14 October without an overall limit.
That aggressive intervention is reassuringly responding to the real issue rather than blindly following commentators calling for rate hikes to match dysfunctional pricing.
The BoE has postponed its active gilt sales until 31 October. However, the forced U-turn within a week should highlight the risk of its worryingly non-state-dependent policy.


<ul>
<li>Inadequate energy supply for the winter has squeezed wholesale prices up, taking yields with it owing to the BoE’s fear of high spot inflation fuelling second-round effects.</li>
<li>The UK government’s new energy price cap removes this as a direct source of inflation and a reason to hike rates near market pricing. It is tactically bullish.</li>
<li>Price caps do not fix supply, so rationing remains likely. Along with the painful fiscal costs, this unimaginative scheme means bearish pressures may reassert in the winter.</li>
</ul>


Inadequate energy supply for the winter has squeezed wholesale prices up, taking yields with it owing to the BoE’s fear of high spot inflation fuelling second-round effects.
The UK government’s new energy price cap removes this as a direct source of inflation and a reason to hike rates near market pricing. It is tactically bullish.
Price caps do not fix supply, so rationing remains likely. Along with the painful fiscal costs, this unimaginative scheme means bearish pressures may reassert in the winter.


<ul>
<li>The UK unemployment rate held at 3.8%, while the underlying data showed more slight rises. Retirement is subduing labour supply while demand (vacancies) is falling.</li>
<li>Changes in wage settlements and unemployment suggest further progression towards the cycle burning out, especially leading into preliminary August data.</li>
<li>Inflation has crushed real wages to record falls, reversing 2020’s rise and growth since 2007. While helpful for the BoE, that record probably prevents a Tory re-election.</li>
</ul>


The UK unemployment rate held at 3.8%, while the underlying data showed more slight rises. Retirement is subduing labour supply while demand (vacancies) is falling.
Changes in wage settlements and unemployment suggest further progression towards the cycle burning out, especially leading into preliminary August data.
Inflation has crushed real wages to record falls, reversing 2020’s rise and growth since 2007. While helpful for the BoE, that record probably prevents a Tory re-election.


<ul>
<li>The BoE hiked by 50bps to 1.75%, in line with market and consensus expectations, but contrary to our view that a lack of increased second round effects would mean 25bps.</li>
<li>A reassessment of existing pressures proved more important than the downside news and state-dependent guidance that was needlessly issued and broken.</li>
<li>We now ignore retained guidance about the reaction function and focus on the BoE’s 2yr inflation forecast. GBP pressure will probably underly another 50bp if it occurs.</li>
</ul>


The BoE hiked by 50bps to 1.75%, in line with market and consensus expectations, but contrary to our view that a lack of increased second round effects would mean 25bps.
A reassessment of existing pressures proved more important than the downside news and state-dependent guidance that was needlessly issued and broken.
We now ignore retained guidance about the reaction function and focus on the BoE’s 2yr inflation forecast. GBP pressure will probably underly another 50bp if it occurs.


UK 2Y (GUKG2 INDEX)

UK: Fiscal Oh-Turn

The embattled UK government has binned almost all its announced tax cuts and its policy platform. Cancelling fiscal stimulus reduces hawkish...

Phil Rush

Dr BoE Brings Bonds to Heel for Healing

UK market dysfunction has forced the BoE to intervene in-between meetings. It will buy gilts every day until 14 Oct without an overall limit,...

Phil Rush

UK: Bullishly Capping Yields with Energy

The UK government’s new energy price cap is tactically bullish for the UK. However, price caps do not fix supply, so rationing remains likely....

Phil Rush

UK: Labour Market Pains Propagating

Changes in wage settlements and unemployment suggest further progression toward the cycle burning out. Inflation has crushed real wages to record...

Phil Rush

BoE: Market Tail Wags Policy Dog

The BoE hiked by 50bps to 1.75%. We now ignore retained reaction function guidance and focus on the BoE’s 2yr inflation forecast. GBP pressure will...

Phil Rush