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>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>Another hawkish repricing occurred, despite little support from the Fed, although the six members favouring higher rates reveal hawkish discomfort beyond current voters.</li><li>Trade with China is still avoiding the trade war well enough to prevent a massive shock, and UK GDP data kept following its residual seasonality rather than fundamental stories.</li><li>It’s all happening next week as central banks and statistical authorities ram releases in before Christmas. Bailey’s bias to pivot should deliver a BoE cut while the ECB holds.</li></ul>

Another hawkish repricing occurred, despite little support from the Fed, although the six members favouring higher rates reveal hawkish discomfort beyond current voters.Trade with China is still avoiding the trade war well enough to prevent a massive shock, and UK GDP data kept following its residual seasonality rather than fundamental stories.It’s all happening next week as central banks and statistical authorities ram releases in before Christmas. Bailey’s bias to pivot should deliver a BoE cut while the ECB holds.

<ul><li>Markets are already pricing the return of rate hikes in 2026 for Canada, Australia and New Zealand, while policymakers elsewhere are starting to warn of the possibility.</li><li>Transitional support to structural adjustments needs unwinding, as Canada signals most prominently. Broader activity resilience and inflation reveal the risk of overstimulation.</li><li>The BoE already committed a policy mistake by easing too early, and is split by those recognising the persistent danger. Market pricing remains too dovish for 2026.</li></ul>

Markets are already pricing the return of rate hikes in 2026 for Canada, Australia and New Zealand, while policymakers elsewhere are starting to warn of the possibility.Transitional support to structural adjustments needs unwinding, as Canada signals most prominently. Broader activity resilience and inflation reveal the risk of overstimulation.The BoE already committed a policy mistake by easing too early, and is split by those recognising the persistent danger. Market pricing remains too dovish for 2026.