Aqueous solutions of a commercial sample of hydrophobically modified ethyl hydroxyethyl cellulose (HC, M-w = 100 kg/mol, nonylphenol substitution ca. 1.7 mol%) were studied with respect to their demixing behaviour and flow characteristics. Phase separation temperatures were measured turbidimetrically and by determining the first discernible macroscopic phase separation. In some cases demixing was also monitored viscometrically. Phase volume ratios yielded a critical polymer concentration of 1.87 wt.% HC (displaced considerably our of the minimum of the demixing curve towards higher polymer concentrations) and a lower critical solution temperature of 47 degrees C. Model calculations of the spinodal curve indicate a moderately exothermal heat of mixing. This conclusion is backed by the intrinsic viscosities determined from 25 to 55 degrees C. In this T-range [eta] falls in a sigmoidal manner to approximately one forth of its value at the lowest temperature (430 ml/g). In spite of short, stiff chains and high dilution (max. 2.5 wt.% HC) these liquids have a highly developed tendency of shear thinning. Further, they exhibit an uncommonly large critical excess viscosity and the dependencies of the zero shear viscosities on composition and temperature show several peculiarities. All these findings and the observed shear induced expansion of the homogenous region by more than 5 degrees C are explained consistently in terms of long-lived clusters between the hydrophobic entities of HC established under equilibrium conditions.