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>UK economic data was mostly as expected, but increased services inflation tipped the balance towards a hawkish stance. The ECB maintained flexibility but is likely to cut rates in September, and the BoE may need to reassess previous data to avoid a rate cut in August.</li><li>The Bank of Canada may respond to rising unemployment and low inflation with a likely consecutive rate cut, rather than adhering to the Fed's hold position.</li><li>Key data to watch include the flash PMIs, US GDP for Q2, and core PCE inflation for June.</li></ul>

UK economic data was mostly as expected, but increased services inflation tipped the balance towards a hawkish stance. The ECB maintained flexibility but is likely to cut rates in September, and the BoE may need to reassess previous data to avoid a rate cut in August.The Bank of Canada may respond to rising unemployment and low inflation with a likely consecutive rate cut, rather than adhering to the Fed's hold position.Key data to watch include the flash PMIs, US GDP for Q2, and core PCE inflation for June.

<ul><li>The ECB unanimously held its policy rates in July, as widely expected after June’s cut, and refused to pre-commit to any outcome in September.</li><li>Its policy will depend on the data in the weeks and months ahead, with some policymakers likely to firm up their positions before September’s highlighted meeting.</li><li>We still expect another cut in September, encouraged by the Fed and BoE also easing policy. However, their premature steps could swiftly require reversals in 2025.</li></ul>

The ECB unanimously held its policy rates in July, as widely expected after June’s cut, and refused to pre-commit to any outcome in September.Its policy will depend on the data in the weeks and months ahead, with some policymakers likely to firm up their positions before September’s highlighted meeting.We still expect another cut in September, encouraged by the Fed and BoE also easing policy. However, their premature steps could swiftly require reversals in 2025.

<ul><li>The UK unemployment rate remained at 4.4% in May as the H1 increases are grinding to a halt in a similar pattern to 2023. Underlying changes are also becoming more neutral.</li><li>Weekly vacancies data have rebounded to March levels while redundancies remain low and monthly pay growth is consistently annualising above 5%.</li><li>The dovish BoE can welcome a renewed slowing in the headline wage growth rate despite current levels remaining inconsistent with the inflation target.</li></ul>

The UK unemployment rate remained at 4.4% in May as the H1 increases are grinding to a halt in a similar pattern to 2023. Underlying changes are also becoming more neutral.Weekly vacancies data have rebounded to March levels while redundancies remain low and monthly pay growth is consistently annualising above 5%.The dovish BoE can welcome a renewed slowing in the headline wage growth rate despite current levels remaining inconsistent with the inflation target.

<ul><li>The final EA inflation print confirmed the flash at 2.52% in June, with services refusing to slow from 4.1%. Median inflation rates broadly rebounded, stabilising the 3mma.</li><li>Divergences between member states’ underlying pressures are balancing slightly above a target-consistent pace. The ECB is unlikely to be concerned about that.</li><li>Stability in the ECB’s medium-term forecast seems sufficient for it to cut again in September. Tight labour markets may yet renew pressures and pause cuts later.</li></ul>

The final EA inflation print confirmed the flash at 2.52% in June, with services refusing to slow from 4.1%. Median inflation rates broadly rebounded, stabilising the 3mma.Divergences between member states’ underlying pressures are balancing slightly above a target-consistent pace. The ECB is unlikely to be concerned about that.Stability in the ECB’s medium-term forecast seems sufficient for it to cut again in September. Tight labour markets may yet renew pressures and pause cuts later.

<ul><li>UK inflation was broadly unchanged and close to expectations in June, although resilient services price strength was offset by temporary weakness in goods again.</li><li>Seasonal goods discounting is unsustainable disinflation. Underlying pressures remain too high, and their persistence keeps raising consensus forecasts.</li><li>An August BoE rate cut remains most likely, albeit less than before. It can point to the headline rate matching its forecast and lean on its expectation that things will improve.</li></ul>

UK inflation was broadly unchanged and close to expectations in June, although resilient services price strength was offset by temporary weakness in goods again.Seasonal goods discounting is unsustainable disinflation. Underlying pressures remain too high, and their persistence keeps raising consensus forecasts.An August BoE rate cut remains most likely, albeit less than before. It can point to the headline rate matching its forecast and lean on its expectation that things will improve.

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".