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>PMIs place the Euro area as the global epicentre of current weakness, which is as bad as last year. Similarity may not be a coincidence: the trough may be imminent.</li>
<li>2020’s crash appears to be polluting the seasonal adjustment of many datasets. The ESI fell less in lockdown and looks less distorted. Indeed, it has proven resilient recently. </li>
<li>Monetary policy should be more sensitive to unemployment and inflation. We still expect no more ECB rate hikes and a final 25bp step from the BoE in November.</li>
</ul>


PMIs place the Euro area as the global epicentre of current weakness, which is as bad as last year. Similarity may not be a coincidence: the trough may be imminent.
2020’s crash appears to be polluting the seasonal adjustment of many datasets. The ESI fell less in lockdown and looks less distorted. Indeed, it has proven resilient recently. 
Monetary policy should be more sensitive to unemployment and inflation. We still expect no more ECB rate hikes and a final 25bp step from the BoE in November.


<ul>
<li>The BoE MPC’s September decision was thrown into doubt by the low CPI print. It divided 5:4 and erred on the side of no change, contrary to most expectations.</li>
<li>Weaker activity data gained emphasis while looking through surging average earnings data that it didn’t believe. Potential payback could easily turn this hold into a pause.</li>
<li>Four members already favour higher rates, and another four saw their no-change votes as finely balanced. So at least the HR hurdle to a November hike seems small.</li>
</ul>


The BoE MPC’s September decision was thrown into doubt by the low CPI print. It divided 5:4 and erred on the side of no change, contrary to most expectations.
Weaker activity data gained emphasis while looking through surging average earnings data that it didn’t believe. Potential payback could easily turn this hold into a pause.
Four members already favour higher rates, and another four saw their no-change votes as finely balanced. So at least the HR hurdle to a November hike seems small.


<ul>
<li>UK inflation shocked expectations by falling to 6.7% on the CPI and 9.1% on the RPI. An unseasonable summer fall in airfares was partly to blame, but pressure broadly eased.</li>
<li>The underlying inflationary impulse was close to target for the first time in 2yrs. Some positive payback is likely in September, including in services inflation.</li>
<li>Prices are tracking under the BoE’s August MPR forecast, but wages are running hotter, which creates pressure later, so the BoE remains likely to hike in September.</li>
</ul>


UK inflation shocked expectations by falling to 6.7% on the CPI and 9.1% on the RPI. An unseasonable summer fall in airfares was partly to blame, but pressure broadly eased.
The underlying inflationary impulse was close to target for the first time in 2yrs. Some positive payback is likely in September, including in services inflation.
Prices are tracking under the BoE’s August MPR forecast, but wages are running hotter, which creates pressure later, so the BoE remains likely to hike in September.


<ul>
<li>The flash EA HICP inflation rate was marginally trimmed in August’s final print, causing it to round lower from 5.24%, while the ex-tobacco rate still printed at 5.2%.</li>
<li>Resurgent petrol prices prevented inflation from slowing by more, but powerful base effects in September should re-establish the steep trend decline.</li>
<li>Underlying inflation continues slowing to the extent that the monthly impulse is no longer significantly above target, which should spare the ECB from hiking again.</li>
</ul>


The flash EA HICP inflation rate was marginally trimmed in August’s final print, causing it to round lower from 5.24%, while the ex-tobacco rate still printed at 5.2%.
Resurgent petrol prices prevented inflation from slowing by more, but powerful base effects in September should re-establish the steep trend decline.
Underlying inflation continues slowing to the extent that the monthly impulse is no longer significantly above target, which should spare the ECB from hiking again.


<ul>
<li>The ECB responded to the persistent overshoot of headline inflation with another 25bp rate hike, contrary to the consensus, and indicated this is likely the peak policy rate.</li>
<li>Monetary policy will remain data-dependent, but the focus is increasingly shifting to how long rates stay at the peak before being cut. We expect a year on hold.</li>
<li>Leaning into a final rate hike raises peer pressure on the Fed and the BoE. The BoE has an inflation expectations issue to conquer, so it’s appropriate to go further.</li>
</ul>


The ECB responded to the persistent overshoot of headline inflation with another 25bp rate hike, contrary to the consensus, and indicated this is likely the peak policy rate.
Monetary policy will remain data-dependent, but the focus is increasingly shifting to how long rates stay at the peak before being cut. We expect a year on hold.
Leaning into a final rate hike raises peer pressure on the Fed and the BoE. The BoE has an inflation expectations issue to conquer, so it’s appropriate to go further.


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".

Phil Rush
Chief Economist
• Heteronomics

EA Slowdown Exaggerated in Summers

Recent weak activity data appears exaggerated by 2020's lockdown and reopening. Residual seasonality suggests a trough is near. We still expect no...

Phil Rush

BoE: Fine Balance Falls Down

The BoE MPC’s finally balanced decision split 5:4 for a surprise no change. Potential payback could easily turn this hold into a pause. Four no...

Phil Rush

UK: Flying Low in Augusts

UK CPI inflation shocked expectations by falling to 6.7%. An unseasonable fall in airfares was partly to blame, but pressure broadly eased....

Phil Rush

EA: Disinflation Not Petering Out

EA HICP inflation was marginally trimmed into rounding down to 5.2% in the final print for August. Resurgent petrol prices offset slower...

Phil Rush

ECB Poses a Probable Peak After Hike

ECB raises rates and signals it's the peak. The policy focus is increasingly shifting to how long rates stay there. Hiking raises pressure on the...

Phil Rush

EA Slowdown Exaggerated in Summers

​Recent weak activity data appears exaggerated by 2020's lockdown and reopening. Residual seasonality suggests a trough is near. We still expect no...

Phil Rush

BoE: Fine Balance Falls Down

The BoE MPC’s finally balanced decision split 5:4 for a surprise no change. Potential payback could easily turn this hold into a pause. Four no...

Phil Rush

UK: Flying Low in Augusts

UK CPI inflation shocked expectations by falling to 6.7%. An unseasonable fall in airfares was partly to blame, but pressure broadly eased....

Phil Rush

EA: Disinflation Not Petering Out

​EA HICP inflation was marginally trimmed into rounding down to 5.2% in the final print for August. Resurgent petrol prices offset slower...

Phil Rush

ECB Poses a Probable Peak After Hike

​ECB raises rates and signals it's the peak. The policy focus is increasingly shifting to how long rates stay there. Hiking raises pressure on the...

Phil Rush

Recent weak activity data appears exaggerated by 2020's lockdown and reopening. Residual seasonality suggests a trough is near. We still expect no...

EA HICP inflation was marginally trimmed into rounding down to 5.2% in the final print for August. Resurgent petrol prices offset slower...

ECB raises rates and signals it's the peak. The policy focus is increasingly shifting to how long rates stay there. Hiking raises pressure on the...