On Mar 19, European Union (EU) negotiator Michel Barnier together with his British counterpart David Davis announced a Brexit transition agreement at a news conference in Brussels, which will give Britain shelter under the EU umbrella for a longer period. Following this development, the pound increased against key currencies including the dollar and euro. In fact, pound sterling moved above the psychological level of $1.40 for the first time since late February.
Additionally, the United Kingdom witnessed a decline in key inflation data and a strong surge in industrial output. The decline in inflation weighed on the Bank of England’s near-term key interest rate hike prospects. Moreover, a fall in government borrowings in the first 10 months of this fiscal and steady economic growth outlook also boosted sentiment. Hence, investing in stocks exposed to an improving Britain is a brilliant option.
Brexit Transition Accord Serves As a Breather
This Monday, both the EU and Britain negotiators came to an agreement that after the official transition occurs in March 2019, Britain will remain part of the EU’s economic structure for a transition period of 21 months. This decision was made so that the country does not face any “cliff edge,” when it exits the economic bloc. Barnier stated that this “decisive step” is necessary for a smooth transition during Brexit.
The Brexit transition deal not only boosted the pound sterling against key currencies but also raised the Bank of England’s rate hike chances. Against the dollar, pound sterling rose from $1.3944 to $1.4032 on Monday, hitting a one-month high of $1.4089 earlier on the day. Although following the release of key inflation data on Tuesday, thepound sterling pared some its Monday’s gains, it still remained above its psychological level of $1.40 against the greenback.
CPI Declines, Industrial Output Jumps
According to the Office for National Statistics (ONS) data, CPI fell from 3% in January to 2.7% in February, reaching its lowest settlement since last July. The CPI inflation data was also lower than Bank of England’s Monetary Policy Committee’s projection of 2.9%. Additionally, core CPI data came in at 2.4% last month, lower than 2.7% registered in January. Decline in CPI inflation data have raised questions over the Bank of England’s willingness to raise key interest rates as early as in May.
Additionally, U.K.’s industrial production advanced 1.3% in January from December posting its largest increase in more than a year. The ONS also said that mining and quarrying output, which was the biggest contributor to the industrial production surge, climbed 23.5%.
Meanwhile, GDP of UK rose 0.4% during the October-to-December period, lower than the initial estimate of a 0.5% increase, per the ONS. The economy’s year-over-year growth of 1.7% also fell short of the previous estimate of 1.8%.
However, the Bank of England showed optimism in the economy’s growth potential as it raised its year-over-year economic growth projection from the earlier 1.6% to 1.8%. Moreover, the country’s public sector borrowed £37.7 billion in the first 10 months of the fiscal year 2017-18, lower than £44.9 during the same period of fiscal year 2016-17.
5 British Stocks to Buy Now
Following the transition agreementand the U.K. economy’s brighter prospects for this year, British stocks are expected to garner investor attention. Additionally, jump in industrial output and lower government sector borrowings bode well for the country’s economy.
In this context, we have selected five stocks that are expected to gain following these developments. These stocks also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Fiat Chrysler Automobiles N.V. (FCAU - Free Report) with its subsidiaries, designs, engineers, manufactures, distributes, and sells vehicles, components, and production systems.
This London-based company has a Zacks Rank #2. The expected earnings growth rate for the current year is 33.94%. The Zacks Consensus Estimate for the current year has improved 8.4% over the last 30 days. Fiat Chrysler Automobiles has gained 92.3% in the last one year period.
Nomad Foods Limited (NOMD - Free Report) manufactures and distributes frozen foods primarily in the United Kingdom, Italy, Germany, Sweden, France and Norway.
This Feltham-based company has a Zacks Rank #1. The expected earnings growth rate for the current year is 18.99%. The Zacks Consensus Estimate for the current year has improved 2.9% over the last 30 days. Nomad Foods has gained 49.1% in the last one year period.
Prudential plc (PUK - Free Report) provides a range of retail financial products and services, and asset management services to individuals and businesses primarily in the United Kingdom, the United States and Asia.
This London-based company has a Zacks Rank #2. The expected earnings growth rate for the current year is 15.91%. The Zacks Consensus Estimate for the current year has improved 2% over the last 30 days. Prudential has gained 23.5% in the last one year period.
InterContinental Hotels Group PLC owns, manages, franchises and leases hotels in the Americas, Europe, Asia, the Middle East, Africa, and Greater China.
This Denham-based company has a Zacks Rank #2. The expected earnings growth rate for the current year is 19.07%. The Zacks Consensus Estimate for the current year has improved 6% over the last 30 days. InterContinental Hotels Group has gained 27.9% in the last one year period.
RELX PLC provides information and analytics for professional and business customers in the United States and internationally.
This London-based company has a Zacks Rank #2. The expected earnings growth rate for the current year is 7.77%. The Zacks Consensus Estimate for the current year has improved 1.8% over the last 30 days. RELX has gained 7.1% in the last one year period.
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