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 March, UK retail disappointed to a shocking extent as food and non-store sales plummeted. This profile is not just a healthy rotation back to pre-covid spending habits.</li>
<li>Inflation demands more spending that isn’t affordable, so volumes get directly crushed while consumers get more cautious about the environment for major purchases. </li>
<li>GDP is at risk of declining in March. We expect zero growth and maintain our below-consensus Q2 forecast for 0.3% q-o-q GDP growth. Inflation hurts real activity. </li>
</ul>


In March, UK retail disappointed to a shocking extent as food and non-store sales plummeted. This profile is not just a healthy rotation back to pre-covid spending habits.
Inflation demands more spending that isn’t affordable, so volumes get directly crushed while consumers get more cautious about the environment for major purchases. 
GDP is at risk of declining in March. We expect zero growth and maintain our below-consensus Q2 forecast for 0.3% q-o-q GDP growth. Inflation hurts real activity. 


<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.


Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>Financial markets are dominated by uncertainties being created by Russia's invasion of Ukraine and the potential economic impact of the Fed raising rates and unwinding its balance sheet simultaneously.</li>
<li>The volatility and level of rates in EM are rising with the US but with differentiation: Asia and Central Europe are underperforming, while Latin America is outperforming.</li>
<li>The possibility of binary economic scenarios playing out as a result of the current uncertainties makes me pause for more clarity before making new trade recommendations.</li>
</ul>


Financial markets are dominated by uncertainties being created by Russia's invasion of Ukraine and the potential economic impact of the Fed raising rates and unwinding its balance sheet simultaneously.
The volatility and level of rates in EM are rising with the US but with differentiation: Asia and Central Europe are underperforming, while Latin America is outperforming.
The possibility of binary economic scenarios playing out as a result of the current uncertainties makes me pause for more clarity before making new trade recommendations.


Rates in Asia Underperform Following the Fed Hike and Russia’s Invasion

<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.


United Kingdom

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

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UK: Crushed Retail Will Hurt GDP

UK retail disappointed to a shocking extent as inflation bites. GDP is at risk of declining in March. We expect zero growth and maintain our below...

Phil Rush

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

Rates in Asia Underperform Following the Fed Hike and Russia’s Invasion

With financial markets dominated by uncertainties created by Fed tightening and Russia's invasion, rates in Asia and Central Europe are...

Gautam Jain, PhD, CFA

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

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