February 05, 2021
HEM: UK pain and HICP gain_image

HEW: awaiting weighting clarity

  • The Bank of England’s Monetary Policy Report was the main UK event over the past week, even if its news value was low for us (BoE: preparing policy like a Scout). Its perfunctory response to the negative rates review, bias to reduce the pace of purchases later, and forecast revisions at least reduced the policy risks as it delivered our view on all fronts. Meanwhile, Italy’s political problems also found a market-friendly short-term solution, even while longer term risks were exaggerated (see Italy: Dragging in Draghi). Inflation releases over the past week continued the theme of reweighting-driven disruption, with large upside surprises to the Consensus. The EA outcome was still 8bps above our forecast, which had factored in this effect.
  • Further inflation releases next week from Norway and the final one for Germany should guide on how widespread such disruption is outside of the EU, and allow the re-weighting to be more accurately incorporated. Together with the realisation of a January surge, our previously top-of-consensus EA forecast probably won’t stay so for long. We remain comfortable at the gloomy end of the consensus on UK GDP growth in 2021, though, as explained in the Heteronomics Economic Monthly (see HEM: UK pain and HICP gain).

January 29, 2021
HEW: BoE and flash-bang inflation_image

HEW: BoE and flash-bang inflation

  • Happy New Year! The UK’s holiday season ended up being bookended by some substantial lockdown related news as initial loosening plans were rowed back and then significantly tightened again. This Covid-centric reaction function had already motivated my gloomy growth forecasts that languished at the bottom of the Consensus. However, the outcome was even more severe than I expected, leading to further downgrades (HEM: 50 shades of lockdown). Any costs of having only a skinny new UK-EU trade deal seem small in comparison (Brexit: Yippee Ki Yay, Negotiators).
  • Next week, GDP data are the main UK release, where I expect a 4% m-o-m decline owing to the second lockdown. Unfortunately, the new lockdown is far stricter and seems set to dwarf this “old news”. Meanwhile, elsewhere in Europe, several countries, including Norway and Sweden, are scheduled to publish their December inflation data.
  • ​In Heteronomics news, we are excited to be sharing our Euro Area inflation forecasts with you, starting from this weekly. Moreover, we will be transparently providing all the disaggregated details across member states and sectors. Underlying these forecasts are advanced machine learning models using large volumes of data and our domain specialism, powered by Amazon Web Services.

January 22, 2021
HEW: month-end in a flash_image

HEW: month-end in a flash

  • There’s been plenty of macro news over the past week in multiple areas. Most recently, the UK’s retail sales and high-frequency statistics revealed a failure to rebound in December between the lockdowns, and a bleak start to the year (see UK: no sales binge between prohibitions). UK inflation data stepped up while rates in Austria and Malta were slightly on the soft side. The ECB delivered the main news in the euro area, though, with its guidance on the hawkish side (see ECB: leaving space in its envelope). We also highlighted the underlying weakness in the EA labour market that is being masked in the current headlines, and the scale of internal disequilibrium that could correct this year (see EA: re-intensifying labour market pains).
  • As we enter the final week of the month, there is the unusually late appearance of the UK labour market for November, where we are broadly in line with the Consensus. Beyond the ECB speeches, especially Lagarde’s on Monday, we will also be watching the early flash releases closely. We see a smaller rebound than the Consensus in Germany and relatively subdued numbers elsewhere.