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After entering a technical recession in the latter part of 2023, Britain’s economy rebounded in January, growing 0.2% month on month driven by a resurgence in retailing and house-building sectors due to easing inflation levels.
Rising market expectations of a rate cut in June paints an optimistic picture for the country’s economy. According to the U.K. finance minister Jeremy Hunt, as quoted on Reuters, the recent economic data highlights the progress in the economy.
The Office for Budget Responsibility (OBR) forecasts economic expansion of 1.9% in 2025 and 2.0% in 2026, slightly higher than their previous estimates of 1.4% and 2.0% for the respective years, according to Reuters.
Increasing Rate Cut Forecasts
The Bank of England (BOE) plans to reduce borrowing costs in Q3 even though 40% of economists anticipate an earlier cut, according to a Reuters poll, aligning it closely with the Federal Reserve and the European Central Bank.
Moderating inflation level is allowing policymakers the option to explore an earlier rate cut, with median forecasts projecting the rate to drop to 4.75% by end-September and reach 4.50% by the end of 2024.
Falling Inflation Level Provides Further Boost
According to Reuters, after reaching an all-time high of 11.1% in October 2022, inflation is expected to fall to 1.8% the following quarter, below the BOE's target of 2%. According to projections, it will remain near this aim through at least the end of 2025.
Per a Reuters article, in February, U.S. bank Citi reported a decline in the British public's inflation expectations for both the short and the long term. Expectations for inflation in 12 months dropped to 3.6% from 3.9%, while expectations for the five-to-10-year period fell to 3.5% from 3.6%.
Citi noted that with inflation expected to decrease to 2% in the second quarter, the immediate risk appears to be diminishing.
ETFs in Focus
The FTSE 100, driven by exporters, rose 0.3% to reach a nine-month high, fueled by the ongoing positive sentiment, moderating inflation levels and the anticipated loosening of monetary policies throughout 2024. Below, we highlight a few pure-play U.K. ETFs.
iShares MSCI United Kingdom ETF seeks to track the performance of the MSCI United Kingdom Index with a basket of 84 securities. The fund has gathered an asset base of $2.55 billion and charges an annual fee of 0.50%.
iShares MSCI United Kingdom ETF has major exposure to financials (18.04%), followed by consumer staples (16.81%) and industrials (12.88%). The fund has gained 2.92% over the past three months and 5.61% over the past year.
Franklin FTSE United Kingdom ETF seeks to track the performance of the FTSE UK RIC Capped Index with a basket of 107 securities. The fund has amassed an asset base of $6415 million and charges an annual fee of 0.09%.
Franklin FTSE United Kingdom ETF has major exposure to finance (18.5%), followed by consumer non-durables (14.19%) and energy minerals (12.11%). The fund has gained 3.75% over the past three months and 6.62% over the past year.
iShares MSCI United Kingdom Small-Cap ETF (EWUS - Free Report)
iShares MSCI United Kingdom Small-Cap ETF seeks to track the performance of the MSCI United Kingdom Small Cap Index with a basket of 236 securities. The fund has gathered an asset base of $43.6 million and charges an annual fee of 0.59%.
iShares MSCI United Kingdom Small-Cap ETF has major exposure to industrials (22.32%), followed by financials (18.22%) and consumer discretionary (16.68%). The fund has gained 4.97% over the past three months and 3.75% over the past year.
First Trust United Kingdom AlphaDEX Fund (FKU - Free Report)
First Trust United Kingdom AlphaDEX Fund seeks to track the performance of the NASDAQ AlphaDEX United Kingdom Index with a basket of 76 securities. The fund has gathered an asset base of $62.6 million and charges an annual fee of 0.80%.
First Trust United Kingdom AlphaDEX Fund major exposure to consumer discretionary (21.06%), followed by financials (18.06%) and industrials (16.27%). The fund has gained 3.92% over the past three months and 7.59% over the past year.
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ETFs to Ride UK's 2024 Recovery Wave
After entering a technical recession in the latter part of 2023, Britain’s economy rebounded in January, growing 0.2% month on month driven by a resurgence in retailing and house-building sectors due to easing inflation levels.
Rising market expectations of a rate cut in June paints an optimistic picture for the country’s economy. According to the U.K. finance minister Jeremy Hunt, as quoted on Reuters, the recent economic data highlights the progress in the economy.
The Office for Budget Responsibility (OBR) forecasts economic expansion of 1.9% in 2025 and 2.0% in 2026, slightly higher than their previous estimates of 1.4% and 2.0% for the respective years, according to Reuters.
Increasing Rate Cut Forecasts
The Bank of England (BOE) plans to reduce borrowing costs in Q3 even though 40% of economists anticipate an earlier cut, according to a Reuters poll, aligning it closely with the Federal Reserve and the European Central Bank.
Moderating inflation level is allowing policymakers the option to explore an earlier rate cut, with median forecasts projecting the rate to drop to 4.75% by end-September and reach 4.50% by the end of 2024.
Falling Inflation Level Provides Further Boost
According to Reuters, after reaching an all-time high of 11.1% in October 2022, inflation is expected to fall to 1.8% the following quarter, below the BOE's target of 2%. According to projections, it will remain near this aim through at least the end of 2025.
Per a Reuters article, in February, U.S. bank Citi reported a decline in the British public's inflation expectations for both the short and the long term. Expectations for inflation in 12 months dropped to 3.6% from 3.9%, while expectations for the five-to-10-year period fell to 3.5% from 3.6%.
Citi noted that with inflation expected to decrease to 2% in the second quarter, the immediate risk appears to be diminishing.
ETFs in Focus
The FTSE 100, driven by exporters, rose 0.3% to reach a nine-month high, fueled by the ongoing positive sentiment, moderating inflation levels and the anticipated loosening of monetary policies throughout 2024. Below, we highlight a few pure-play U.K. ETFs.
iShares MSCI United Kingdom ETF (EWU - Free Report)
iShares MSCI United Kingdom ETF seeks to track the performance of the MSCI United Kingdom Index with a basket of 84 securities. The fund has gathered an asset base of $2.55 billion and charges an annual fee of 0.50%.
iShares MSCI United Kingdom ETF has major exposure to financials (18.04%), followed by consumer staples (16.81%) and industrials (12.88%). The fund has gained 2.92% over the past three months and 5.61% over the past year.
Franklin FTSE United Kingdom ETF (FLGB - Free Report)
Franklin FTSE United Kingdom ETF seeks to track the performance of the FTSE UK RIC Capped Index with a basket of 107 securities. The fund has amassed an asset base of $6415 million and charges an annual fee of 0.09%.
Franklin FTSE United Kingdom ETF has major exposure to finance (18.5%), followed by consumer non-durables (14.19%) and energy minerals (12.11%). The fund has gained 3.75% over the past three months and 6.62% over the past year.
iShares MSCI United Kingdom Small-Cap ETF (EWUS - Free Report)
iShares MSCI United Kingdom Small-Cap ETF seeks to track the performance of the MSCI United Kingdom Small Cap Index with a basket of 236 securities. The fund has gathered an asset base of $43.6 million and charges an annual fee of 0.59%.
iShares MSCI United Kingdom Small-Cap ETF has major exposure to industrials (22.32%), followed by financials (18.22%) and consumer discretionary (16.68%). The fund has gained 4.97% over the past three months and 3.75% over the past year.
First Trust United Kingdom AlphaDEX Fund (FKU - Free Report)
First Trust United Kingdom AlphaDEX Fund seeks to track the performance of the NASDAQ AlphaDEX United Kingdom Index with a basket of 76 securities. The fund has gathered an asset base of $62.6 million and charges an annual fee of 0.80%.
First Trust United Kingdom AlphaDEX Fund major exposure to consumer discretionary (21.06%), followed by financials (18.06%) and industrials (16.27%). The fund has gained 3.92% over the past three months and 7.59% over the past year.