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>In September, the BoE MPC voted for an unchanged policy, although Dave Ramsden joined Michael Saunders in dissenting while the two new members supported the status quo. Some non-dissenters may be no less hawkish and merely favour using rates first.</li>
<li>Developments are viewed through a hawkish lens as GDP downgrades are seen as supply temporarily constraining strong demand while upside inflation news risks second-round effects. The formal policy guidance was considered no longer useful and dropped.</li>
<li>We still believe most MPC members would consider a mid-22 rate hike appropriate, but we expect disappointing demand data to delay that into 2023. However, with a less bullish GDP forecast and ongoing labour market resilience, our risks skew earlier.</li>
</ul>


In September, the BoE MPC voted for an unchanged policy, although Dave Ramsden joined Michael Saunders in dissenting while the two new members supported the status quo. Some non-dissenters may be no less hawkish and merely favour using rates first.
Developments are viewed through a hawkish lens as GDP downgrades are seen as supply temporarily constraining strong demand while upside inflation news risks second-round effects. The formal policy guidance was considered no longer useful and dropped.
We still believe most MPC members would consider a mid-22 rate hike appropriate, but we expect disappointing demand data to delay that into 2023. However, with a less bullish GDP forecast and ongoing labour market resilience, our risks skew earlier.


<ul>
<li>Gas and electricity prices have jumped amid a perfect storm of supply pressures, especially in the UK, where the infrastructure has failed in storage and through fire. </li>
<li>The extreme moves concentrate this winter, causing our typically accurate model to suffer. We now implement the regulator’s full model. The peak RPI y-o-y impact now looks less to us, at 89bps, and a small cut could occur with contract rolls in Oct-22.</li>
</ul>


Gas and electricity prices have jumped amid a perfect storm of supply pressures, especially in the UK, where the infrastructure has failed in storage and through fire. 
The extreme moves concentrate this winter, causing our typically accurate model to suffer. We now implement the regulator’s full model. The peak RPI y-o-y impact now looks less to us, at 89bps, and a small cut could occur with contract rolls in Oct-22.


<ul>
<li>Retail sales delivered another substantial disappointment by declining for the fourth consecutive month in August. Declines remained broad-based rather than reflecting a normalisation towards services, and restaurant bookings are falling in September.</li>
<li>Post-holiday quarantine has overtaken the “pingdemic”, with more adults than ever forced into isolation (nearly a million). Further disruption is likely to return with the schools. Consumers remain gloomy about their situation and are not splurging savings.</li>
</ul>


Retail sales delivered another substantial disappointment by declining for the fourth consecutive month in August. Declines remained broad-based rather than reflecting a normalisation towards services, and restaurant bookings are falling in September.
Post-holiday quarantine has overtaken the “pingdemic”, with more adults than ever forced into isolation (nearly a million). Further disruption is likely to return with the schools. Consumers remain gloomy about their situation and are not splurging savings.


<ul>
<li>UK inflation data resumed its tendency to exceed expectations in Aug-21 as record rises in the growth rate took the CPI to 3.2% and RPI to 4.8%. The CPI puts more weight on the jump in games prices. Most shocks in both directions are likely to unwind partly.</li>
<li>Although this release doesn’t throw our Sep-21 forecasts, exploding energy prices have caused substantial changes over the past month. Lags in the transmission mean Apr-22 bears the brunt, taking over as the CPI peak and stretching the transitory excess.</li>
</ul>


UK inflation data resumed its tendency to exceed expectations in Aug-21 as record rises in the growth rate took the CPI to 3.2% and RPI to 4.8%. The CPI puts more weight on the jump in games prices. Most shocks in both directions are likely to unwind partly.
Although this release doesn’t throw our Sep-21 forecasts, exploding energy prices have caused substantial changes over the past month. Lags in the transmission mean Apr-22 bears the brunt, taking over as the CPI peak and stretching the transitory excess.


<ul>
<li>The UK’s rapid recovery phase ended in July with GDP only limping up by 0.1% m-o-m, despite output still languishing 2.4% below the pre-covid level. Only the most depressed sectors even expanded, with most of the economy slipping further from their peaks.</li>
<li>It is hard to find an optimistic angle, but seasonal factors may have distorted the recovery profile. We now track Q3 GDP growth at 1.4%, which is below our already gloomy forecast for H2 before any covid-related restrictions return.</li>
</ul>


The UK’s rapid recovery phase ended in July with GDP only limping up by 0.1% m-o-m, despite output still languishing 2.4% below the pre-covid level. Only the most depressed sectors even expanded, with most of the economy slipping further from their peaks.
It is hard to find an optimistic angle, but seasonal factors may have distorted the recovery profile. We now track Q3 GDP growth at 1.4%, which is below our already gloomy forecast for H2 before any covid-related restrictions return.


UK 2Y (GUKG2 INDEX)

BoE: Drops Guidance like Its Hot

Dave Ramsden joined the dissent against QE. We believe most MPC members would consider a mid-22 rate hike appropriate, but we expect disappointing...

Phil Rush

UK: Energy Jump into a Forward Roll Down

Extreme gas and electricity moves concentrate into this winter. However, the peak UK RPI y-o-y impact now looks less to us, at 89bps, and a small...

Phil Rush

UK: On Holiday from Retail

Post-holiday quarantine has overtaken the “pingdemic”, with more adults than ever forced into isolation. Further disruption is likely to return...

Phil Rush

UK: Entertaining Inflation in Aug-21

Record rises in the growth rate took the CPI to 3.2% and RPI to 4.8%. Exploding energy prices have caused more substantial change. The CPI peak is...

Phil Rush

UK: RIP Rapid Recovery

The UK’s rapid recovery phase ended in July, despite output languishing 2.4% below peak. Only the most depressed sectors even expanded, with most...

Phil Rush