February 26, 2021
HEM: UK pain and HICP gain_image

HEW: British Budget and EA Feb flash

  • Over the past week, most UK economic headlines have been about activity, specifically the government’s lockdown exit plans and the labour market report. Those plans merely confirmed our view that the exit would be extremely gradual to the extent that the UK fails to collect an economic dividend from its relatively successful vaccination programme (see UK: lockdown exit-road full of GDP peril). The modest unemployment rise in the labour market report wasn’t news per se either, while the surge in wages was striking (see UK: labour market blips in lockdown). Confirmation of the jump in EA inflation for Jan-21 helped extend the reflationary theme, although it was largely about weighting effects (see EA: echoes from inflation’s remix).
  • Weighting effects cut the other way in February and are likely to contribute to the current Consensus being disappointed. Each of the four flash releases so far has disappointed our forecast, which incorporates the weighting issue in full depth, albeit only by 0.1pp in the case of France and Portugal. A Budget is the main event on the UK calendar for the week ahead, though. We expect an extension of some support schemes and a deferral of most consolidation measures, while warming up expectations to their inevitable existence. The hole in the economy and the public finances is likely to be substantial, with the gaping extent getting clearer as the year progresses.

February 19, 2021
HEM: UK pain and HICP gain_image

HEW: the final countdown for Jan HICP

  • More inflation strength and UK activity weakness were revealed over the past week, continuing trends in both. This time the inflation news came from the UK and Sweden, where the former was precisely in line with our headline forecast and the latter was only 4bps stronger. The collapse in UK retail sales was the more substantial surprise as it was more than three-times the consensus fall and triple that experienced in the November lockdown (see UK: retail pain triples in lockdown 3). Markets still seem more interested in the future potential for vaccine-related outperformance than the realised relative recovery in mobility outside the UK, though. The trend is more friendly than the fundamental substance.
  • The final HICP inflation print for the euro area is the most significant data release next week, not least because it contains weighting details essential to our extremely disaggregated modelling approach. Meanwhile, labour market data are the most important in the UK, but the politics will probably dominate with the long-awaited roadmap out of lockdown scheduled for Monday.
  • In Heteronomics news, we are pleased to have rolled out our new website. We now have full flexibility to serve up the wider range of dynamic content that we’ve been developing for this site. For example, interactive dashboards by theme and country will soon become available through the platform so you can engage with our content in a way that suits your process. New login details will be needed for that, but we’re endeavouring to minimise any frictions and will be in contact about that soon.

February 12, 2021
HEM: UK pain and HICP gain_image

HEW: data distortion returning to the UK

  • GDP was the only interesting release in the UK over the past week. However, as welcome as the upside surprise is for December, it is increasingly concerning how many businesses are disappearing from the coverage – i.e. 6.1% of total services turnover. By counting these businesses the same as respondents, the ONS could be temporarily assuming away pain on the scale of a typical recession (see UK: GDP recovery miscounts private pain). Between this and the popular narrative that vaccine success drives economic outperformance, we remain comfortable being gloomy (see EU: no relative vaccination success). Meanwhile, in the Nordics, there was a relatively upbeat Riksbank (see Riksbank: hopeful for vaccine dividend) and another upside inflation surprise related to re-weighting, this time in Norway.
  • It’s the turn of the UK and Sweden to incorporate that re-weighting theme next week, albeit with the UK RPI change scheduled for next month instead. Forecasts for Sweden appear to have responded to upside news elsewhere and baked in a sizeable jump to 1.5%, as we also forecast. However, UK economists don’t appear to have made any adjustments, with their forecast closer to my view before weighting changes than now. As such, we are 0.2pp above the Consensus on the upcoming UK CPI. The smaller effect on Jan-21 in the UK is because clothing expenditures do not appear to have moved as much in the UK as elsewhere. There are some larger effects in later months.