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 retail sales were broadly battered by the second national lockdown in November, with a 3.8% m-o-m headline decline. High demand at food stores and weakness in clothing and fuel was unsurprising, but non-store sales failed to capitalise further.</li>
<li>The sector has reversed its recent gains by returning to the level from between June and July. A repeat of March’s GDP elasticity or a similar overall reversal would be less bleak than I previously assumed, but remains recessionary over the winter.</li>
</ul>


UK retail sales were broadly battered by the second national lockdown in November, with a 3.8% m-o-m headline decline. High demand at food stores and weakness in clothing and fuel was unsurprising, but non-store sales failed to capitalise further.
The sector has reversed its recent gains by returning to the level from between June and July. A repeat of March’s GDP elasticity or a similar overall reversal would be less bleak than I previously assumed, but remains recessionary over the winter.


<ul>
<li>The BoE MPC unsurprisingly voted unanimously to keep Bank rate at 0.1% and make no changes to its asset purchase programme. Reverse gilt auctions will remain a similar size, albeit adjusted for reinvestment, with the same technical parameters.</li>
<li>Optionality is preserved to raise this pace if market functioning deteriorates again, otherwise, the next change remains likely to be tapering in May-21. No mention was made of rate cuts, which I still see as counter-productive and unlikely to occur.</li>
</ul>


The BoE MPC unsurprisingly voted unanimously to keep Bank rate at 0.1% and make no changes to its asset purchase programme. Reverse gilt auctions will remain a similar size, albeit adjusted for reinvestment, with the same technical parameters.
Optionality is preserved to raise this pace if market functioning deteriorates again, otherwise, the next change remains likely to be tapering in May-21. No mention was made of rate cuts, which I still see as counter-productive and unlikely to occur.


<ul>
<li>The upside news from October’s inflation release more than unwound in Nov-20 as the CPI and RPI rates undershot forecasts by 0.3pp at 0.3% and 0.9% respectively. Garment prices stripped back much more than I had already dovishly assumed.</li>
<li>Payback in garment prices is negligible during Decembers. Shocks in insurance premiums also rarely unwind rapidly, so most of the downside news persists in my forecast. Base effects in the Spring should still kick inflation back up, with it exceeding 2% in Dec-21.</li>
</ul>


The upside news from October’s inflation release more than unwound in Nov-20 as the CPI and RPI rates undershot forecasts by 0.3pp at 0.3% and 0.9% respectively. Garment prices stripped back much more than I had already dovishly assumed.
Payback in garment prices is negligible during Decembers. Shocks in insurance premiums also rarely unwind rapidly, so most of the downside news persists in my forecast. Base effects in the Spring should still kick inflation back up, with it exceeding 2% in Dec-21.


<ul>
<li>UK employment data beat expectations again in Oct-20 with only a 143k 3m-o-3m decline driving a 19bp rise in the unemployment rate to 4.94% (5.1% forecast). Furlough is likely to prolong adjustments and push more of the pain into productivity again.</li>
<li>Recessions routinely break productivity trends with permanent costs that are widely ignored. I remain a productivity pessimist, with recent data and policy intensifying this view. The UR peak I expect keeps pushing lower and later, to about 7% in mid-21.</li>
</ul>


UK employment data beat expectations again in Oct-20 with only a 143k 3m-o-3m decline driving a 19bp rise in the unemployment rate to 4.94% (5.1% forecast). Furlough is likely to prolong adjustments and push more of the pain into productivity again.
Recessions routinely break productivity trends with permanent costs that are widely ignored. I remain a productivity pessimist, with recent data and policy intensifying this view. The UR peak I expect keeps pushing lower and later, to about 7% in mid-21.


<ul>
<li>UK GDP growth more than halved again in October to 0.4% m-o-m, despite output still being almost 8% below its pre-Covid level. The ongoing upheaval of aggressively evolving restrictions killed the recovery even before the renewed destruction of lockdown 2.</li>
<li>The UK is still performing especially poorly relative to its peers. However, most of the real output shortfall is arguably related to the measurement of public services. Counting wasteful nominal spending risks overstating the future tax potential, though.</li>
</ul>


UK GDP growth more than halved again in October to 0.4% m-o-m, despite output still being almost 8% below its pre-Covid level. The ongoing upheaval of aggressively evolving restrictions killed the recovery even before the renewed destruction of lockdown 2.
The UK is still performing especially poorly relative to its peers. However, most of the real output shortfall is arguably related to the measurement of public services. Counting wasteful nominal spending risks overstating the future tax potential, though.


United Kingdom

SPDR FTSE UK All Share ETF is an open ended, UCITS IV compliant exchange traded fund, domiciled in Ireland. The fund's objective is to track the performance of FTSE All Share Index. The Fund invests in physical securities in the index.

SPDR FTSE UK All Share (FTAL LN)

UK: Retail Reverses Gains Since June

UK retail sales were battered by the second national lockdown in November. A repeat of March’s elasticities or a similar overall reversal in GDP...

Phil Rush

BoE: Cruising at a Top Sustainable Speed

The BoE is preserving optionality to speed up purchases if market functioning deteriorates again, otherwise, the next change remains likely to be...

Phil Rush

UK: Inflation Stripped in Nov-20

UK inflation undershot forecasts by 0.3pp as garment prices stripped back much more than I had already dovishly assumed. Base effects should kick...

Phil Rush

UK: Productivity Pains Intensifying

Recessions routinely break productivity trends with permanent costs that are widely ignored. I remain a productivity pessimist, with recent data...

Phil Rush

UK: The Method to Underperform Peers

The UK's recovery effectively ended even before the new lockdown, with output almost 8% below its pre-Covid level. Most of the UK's real...

Phil Rush