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 GDP growth stalled to 0.05% m-o-m in Feb-22 as temporary covid-related health spending ended. Another 1pp might be subtracted over the next few months.</li>
<li>Broader health spending remains bloated, symptomatic of the strains squeezing private sector activity as taxes increase to the detriment of long-term growth.</li>
<li>Inflation’s erosion of real incomes is a painful headwind, but the annual GDP rate benefits from carry-over effects. We forecast 1% q-o-q in Q1 and 4.1% in 2022.</li>
</ul>


UK GDP growth stalled to 0.05% m-o-m in Feb-22 as temporary covid-related health spending ended. Another 1pp might be subtracted over the next few months.
Broader health spending remains bloated, symptomatic of the strains squeezing private sector activity as taxes increase to the detriment of long-term growth.
Inflation’s erosion of real incomes is a painful headwind, but the annual GDP rate benefits from carry-over effects. We forecast 1% q-o-q in Q1 and 4.1% in 2022.


<ul>
<li>Retail sales disappointed by declining again in Feb-22, despite clothing sales surging back towards pre-covid levels. Inflation squeezed out a higher value of spending.</li>
<li>Consumers will need to prioritise essentials while avoiding expensive discretionary commitments. Confidence in the climate for major purchases has already collapsed.</li>
<li>Real incomes face severe erosion in 2022, and we still expect consumers to reflect that hit in volumes again rather than raising nominal consumption growth.</li>
</ul>


Retail sales disappointed by declining again in Feb-22, despite clothing sales surging back towards pre-covid levels. Inflation squeezed out a higher value of spending.
Consumers will need to prioritise essentials while avoiding expensive discretionary commitments. Confidence in the climate for major purchases has already collapsed.
Real incomes face severe erosion in 2022, and we still expect consumers to reflect that hit in volumes again rather than raising nominal consumption growth.


<ul>
<li>The intensified inflation squeeze has created pressure on the government to ease the burden. After blaming Russia, the Chancellor confirmed a temporary fuel duty cut.</li>
<li>More substantive changes to personal taxation served to negate some of the pain from the recent national insurance hikes, leaving middle-income workers to take the load.</li>
<li>A £70bn drop in gilt sales for 22-23 is helpful now the BoE’s bid has gone. An indicative reversal beyond doesn’t sit easily with BoE hopes for active asset sales.</li>
</ul>


The intensified inflation squeeze has created pressure on the government to ease the burden. After blaming Russia, the Chancellor confirmed a temporary fuel duty cut.
More substantive changes to personal taxation served to negate some of the pain from the recent national insurance hikes, leaving middle-income workers to take the load.
A £70bn drop in gilt sales for 22-23 is helpful now the BoE’s bid has gone. An indicative reversal beyond doesn’t sit easily with BoE hopes for active asset sales.


<ul>
<li>The BoE delivered a third back-to-back rate hike in March to 0.75%. However, Jon Cunliffe surprisingly dissented against a change now.</li>
<li>Some modest tightening “might be appropriate in the coming months”, consistent with another hike in May. The BoE now notes “risks on both sides of that judgement”. </li>
<li>We still expect a slower tightening pace (quarterly) beyond May as rates get closer to neutral (1.5%) and the peak passes in inflation pressures.</li>
</ul>


The BoE delivered a third back-to-back rate hike in March to 0.75%. However, Jon Cunliffe surprisingly dissented against a change now.
Some modest tightening “might be appropriate in the coming months”, consistent with another hike in May. The BoE now notes “risks on both sides of that judgement”. 
We still expect a slower tightening pace (quarterly) beyond May as rates get closer to neutral (1.5%) and the peak passes in inflation pressures.


BoE: Rates Hit Third Base During Home Run

<ul>
<li>The UK unemployment rate fell by 11bps to 3.9% as the labour force shrunk enough to offset stagnant employment levels. Gaps are more critical to monetary policymakers.</li>
<li>Unemployment is closing in on the BoE’s 3.8% forecast for Q1, historically consistent with the Bank rate at 0.75%, supporting another 25bps hike in March.</li>
<li>Wage settlements are responding to the tight market and inflation driving real terms declines. That should encourage additional rate hikes this year.</li>
</ul>


The UK unemployment rate fell by 11bps to 3.9% as the labour force shrunk enough to offset stagnant employment levels. Gaps are more critical to monetary policymakers.
Unemployment is closing in on the BoE’s 3.8% forecast for Q1, historically consistent with the Bank rate at 0.75%, supporting another 25bps hike in March.
Wage settlements are responding to the tight market and inflation driving real terms declines. That should encourage additional rate hikes this year.


United Kingdom

The British Pound Sterling is the official currency of The United Kingdom. 

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UK: GDP Losing Its Health Support

UK GDP growth stalled to 0.05% m-o-m in Feb-22 as temporary covid-related health spending ended. Another 1pp might be subtracted over the next few...

Phil Rush

UK: Retail Durables Knocked Out by Costs

Real incomes face severe erosion. Consumers will need to prioritise essentials while avoiding expensive discretionary commitments. Confidence in...

Phil Rush

UK: Budget from Russia with Love

New tax changes negate some of the pain from national insurance hikes, leaving middle-income workers to take the load. A fleeting drop in gilt...

Phil Rush

BoE: Rates Hit Third Base During Home Run

The BoE hiked again in March with a fourth back-to-back step on track for May. We still expect a slower tightening pace (quarterly) beyond May as...

Phil Rush

UK: Labour Market on a Tight Track

The UK unemployment rate fell to 3.9% on a falling labour force. Wage settlements are responding to the tight market and inflation. That should...

Phil Rush

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