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>Employment growth remained brisk into furlough’s end, driving the UR to 4.3%. Payroll data suggest things didn’t collapse in October, but business surveys suggest about 0.45% of jobs were cut. </li>
<li>Headline pay growth continued to crash, and the monthly impulse disappointed again, causing the ONS to hack its view of underlying growth towards our gloomy one.</li>
<li>The gap between jobs and wage growth curbs inflationary pressure and the hawkish urgency. </li>
</ul>


Employment growth remained brisk into furlough’s end, driving the UR to 4.3%. Payroll data suggest things didn’t collapse in October, but business surveys suggest about 0.45% of jobs were cut. 
Headline pay growth continued to crash, and the monthly impulse disappointed again, causing the ONS to hack its view of underlying growth towards our gloomy one.
The gap between jobs and wage growth curbs inflationary pressure and the hawkish urgency. 


<ul>
<li>The BoE confounded market expectations by announcing no policy changes, while only two dissented in favour of a hike. That was in line with our forecast, but the realisation that Bailey over-egged guidance has triggered a substantial swing in market pricing.</li>
<li>Reference to data in the “coming months” implies the first hike will occur in Feb-22. Resilient labour market data are motivating an earlier start than we previously thought, but the path remains highly likely to be much flatter than priced.</li>
</ul>


The BoE confounded market expectations by announcing no policy changes, while only two dissented in favour of a hike. That was in line with our forecast, but the realisation that Bailey over-egged guidance has triggered a substantial swing in market pricing.
Reference to data in the “coming months” implies the first hike will occur in Feb-22. Resilient labour market data are motivating an earlier start than we previously thought, but the path remains highly likely to be much flatter than priced.


<ul>
<li>The government spent its fiscal windfall rather than allow the tax burden to normalise below 1940s levels as the UK public sector increases its dominance. New fiscal rules merely promise virtue in a rolling three-year horizon around this expanding state.</li>
<li>Calls for higher wages are reinforced by a 6.6% rise in the increasingly pervasive minimum. Without productivity gains, it is almost like the government wants the BoE to painfully stomp out excessive exuberance soon, although we still see that risk avoided.</li>
</ul>


The government spent its fiscal windfall rather than allow the tax burden to normalise below 1940s levels as the UK public sector increases its dominance. New fiscal rules merely promise virtue in a rolling three-year horizon around this expanding state.
Calls for higher wages are reinforced by a 6.6% rise in the increasingly pervasive minimum. Without productivity gains, it is almost like the government wants the BoE to painfully stomp out excessive exuberance soon, although we still see that risk avoided.


<ul>
<li>Retail sales disappointed yet again, with a fifth consecutive monthly decline taking most growth rates negative. Food sales are supportive, although that implies consumers continued to shun higher-value food services. A favourable rotation isn’t happening.</li>
<li>Covid infections are rising, renewing the pingdemic, and making some restrictions likely to return in November. Consumers still signal disappointing growth. Repeatedly hiking into a temporary real income squeeze is counterproductive, contrary to market pricing.</li>
</ul>


Retail sales disappointed yet again, with a fifth consecutive monthly decline taking most growth rates negative. Food sales are supportive, although that implies consumers continued to shun higher-value food services. A favourable rotation isn’t happening.
Covid infections are rising, renewing the pingdemic, and making some restrictions likely to return in November. Consumers still signal disappointing growth. Repeatedly hiking into a temporary real income squeeze is counterproductive, contrary to market pricing.


<ul>
<li>The inflationary UK narrative lacked support in the Sep-21 data as previously brisk areas disappointed. Retailers appear to be narrowing discounts during sales periods rather than raising price points. Rises are otherwise mainly in energy and assets (house/car).</li>
<li>Underlying inflation metrics remain relatively high but should return to below target-consistent levels soon. The BoE’s CPI forecasts are on track, despite rising commodities. Its increasingly hawkish communications should not turn into action soon.</li>
</ul>


The inflationary UK narrative lacked support in the Sep-21 data as previously brisk areas disappointed. Retailers appear to be narrowing discounts during sales periods rather than raising price points. Rises are otherwise mainly in energy and assets (house/car).
Underlying inflation metrics remain relatively high but should return to below target-consistent levels soon. The BoE’s CPI forecasts are on track, despite rising commodities. Its increasingly hawkish communications should not turn into action soon.


UK 2Y (GUKG2 INDEX)

UK: Jobs and Wage Growth Gap Gifts Time

UK employment is surging while wage growth is crashing. The gap between jobs and wage growth curbs inflationary pressure and the hawkish urgency.

Phil Rush

BoE: Over-Egged the Policy Pudding

The BoE made no policy changes, in line with our forecast, and triggered a substantial swing in market pricing. Reference to data in the “coming...

Phil Rush

UK: Wanting to Be Made Virtuous

The government spent its fiscal windfall while the tax burden rises to 1940s levels. New fiscal rules merely promise virtue in a rolling three-year...

Phil Rush

UK: Retail Facepalms BoE Pricing

UK retail is suffering a record trend decline, with the risk of new restrictions and disappointment signalled. Repeatedly hiking into this squeeze...

Phil Rush

UK: CPI News Is More Seasonal than Trend

The inflationary UK narrative lacks supportive data. Retailers are narrowing discounts during sales periods rather than raising price points. Rises...

Phil Rush