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>Inflation data broadly disappointed expectations over the past week. The labour market news was more mixed, but higher UK and US unemployment rates raise eyebrows.</li><li>Policymakers behaved themselves, with no surprises and wide dispersion, including a BOJ hike, while the BoE delivered the finely balanced hawkish cut we expected.</li><li>The release calendar adopts a holiday stance for the next few weeks, with only UK and US Q3 GDP data out before Christmas. This publication will be back on 9 January.</li></ul>

Inflation data broadly disappointed expectations over the past week. The labour market news was more mixed, but higher UK and US unemployment rates raise eyebrows.Policymakers behaved themselves, with no surprises and wide dispersion, including a BOJ hike, while the BoE delivered the finely balanced hawkish cut we expected.The release calendar adopts a holiday stance for the next few weeks, with only UK and US Q3 GDP data out before Christmas. This publication will be back on 9 January.

<ul><li>Stronger wage and service price inflation have shrunk the Q1 target undershoot to only 0.1pp, removing the space that doves hoped might free the ECB to cut again.</li><li>Spending over half the year on hold and in a “good place” creates an inertia that will be hard to break towards another cut. We still see the ECB’s easing cycle as over.</li><li>Rolling the disinflationary trend back a year helps soften hawkish pressures, but losing this amid ongoing strength seems more likely to push the ECB into a hawkish direction.</li></ul>

Stronger wage and service price inflation have shrunk the Q1 target undershoot to only 0.1pp, removing the space that doves hoped might free the ECB to cut again.Spending over half the year on hold and in a “good place” creates an inertia that will be hard to break towards another cut. We still see the ECB’s easing cycle as over.Rolling the disinflationary trend back a year helps soften hawkish pressures, but losing this amid ongoing strength seems more likely to push the ECB into a hawkish direction.

<ul><li>The MPC’s 5:4 vote split delivered another finely balanced rate cut, but the doves are divided, with only two likely to roll straight into supporting another cut in February.</li><li>Most MPC members favour caution, or an explicitly slower path of rate cuts, which probably means they expect to wait until March or May before easing further.</li><li>The disinflationary evidence may not arrive with pay settlement plans in the new year, or later, so we still see this as the last BoE rate cut. The global policy cycle is turning.</li></ul>

The MPC’s 5:4 vote split delivered another finely balanced rate cut, but the doves are divided, with only two likely to roll straight into supporting another cut in February.Most MPC members favour caution, or an explicitly slower path of rate cuts, which probably means they expect to wait until March or May before easing further.The disinflationary evidence may not arrive with pay settlement plans in the new year, or later, so we still see this as the last BoE rate cut. The global policy cycle is turning.

<ul><li>Another downward food price revision cut HICP inflation back to 2.1% in November, but the effect was only 1.6bp, and services inflation was marginally stronger than before.</li><li>Service prices are not converging on levels consistent with the ECB’s target, and many underlying metrics are too high. The median is a notable exception, broadly below 2%.</li><li>The ECB’s “good place” assessment should be unaffected by any of this, nor the base effects driving things slightly below the target in January. It should sound neutral.</li></ul>

Another downward food price revision cut HICP inflation back to 2.1% in November, but the effect was only 1.6bp, and services inflation was marginally stronger than before.Service prices are not converging on levels consistent with the ECB’s target, and many underlying metrics are too high. The median is a notable exception, broadly below 2%.The ECB’s “good place” assessment should be unaffected by any of this, nor the base effects driving things slightly below the target in January. It should sound neutral.

<ul><li>UK inflation’s 31bps slowing to 3.15% went far further than expected, with significance raised by the substantial extent and the breadth of downside across divisions.</li><li>However, the news was more concentrated at a component level, leaving the median impulse annualising to 2.3%. We still see underlying pressures driving persistent excess.</li><li>The Governor sought confirmation of disinflation before cutting rates again, so this surprise should secure that move in December, without any commitment to do more.</li></ul>

UK inflation’s 31bps slowing to 3.15% went far further than expected, with significance raised by the substantial extent and the breadth of downside across divisions.However, the news was more concentrated at a component level, leaving the median impulse annualising to 2.3%. We still see underlying pressures driving persistent excess.The Governor sought confirmation of disinflation before cutting rates again, so this surprise should secure that move in December, without any commitment to do more.

Philip Rush is the Founder and Chief Economist of Heteronomics. Until launching in November 2016, he was Nomura's Senior European Economist and was the Chief UK Economist there since 2010. Before that, he was UK Economist at Barclays Wealth, where he also developed strategic asset allocation models for their market return portfolios. Philip started his career at Lehman Brothers covering the UK, Scandinavian and Swiss economies. A book on his fundamental framework was published in January 2018 as "Real Market Economics".