The British economy expanded 0.1% sequentially in Q1, slowing from a 0.4% rise in the previous period and falling short of 0.3% market expectations. It marked the weakest growth rate since a 0.1% shrinkage seen in the fourth quarter of 2012. A decline in construction and slowing manufacturing growth caused the economy to expand so stealthily.
If these were not enough, the latest data revealed that U.K. inflation suddenly slowed in March to the lowest level in a year. The rate of inflation in the U.K. dropped to 2.5% in March 2018 from 2.7% in the prior month and below market expectations of 2.7%.
Bad weather took some of the blame for the GDP disaster but still it stirred questions in investors’ minds as to whether the British economy is healthy enough to survive policy tightening. According to an analyst, “slower growth in consumer spending likely stems from slower real wage growth even as nominal wages have increased.”
All these meant that the Bank of England will not dive into the policy tightening mode in a low inflation and growth scenario. Last time, Bank of England (BoE) hiked its benchmark interest rate by 25 basis points to 0.5% was in November 2017. That was the first hike since July 2007 intended at curbing inflation (read: U.K. Hikes Interest Rates: ETFs in Focus).
If this was not enough, the governor of BoE Mark Carney sent sterling on a downhill ride by acknowledging the likely economic contagion from Brexit and suggesting a delay in the next interest rate hike. All these poured cold water on market odds that the bank is preparing for a move in May.
PowerShares CurrencyShares British Pound Sterling Trust (FXB - Free Report) lost about 1.1% in the past two trading sessions (as of Apr 28, 2018) to reflect slowing GDP data and was down 1.3% in the last five days.
ETFs & Stocks to Buy
Against this backdrop, investors can consider U.K. ETFs and stocks. Below we highlight a few products for investors (see all European Equity ETFs here).
Deutsche X-trackers MSCI United Kingdom Hedged Equity Fund (DBUK - Free Report)
The underlying MSCI United Kingdom US Dollar Hedged Index looks to provide exposure to the equity market of the United Kingdom, while at the same time mitigating exposure to fluctuations between the value of the U.S. dollar and British pound sterling. The fund yields 4.06% annually.
iShares Currency Hedged MSCI United Kingdom ETF(HEWU - Free Report)
The underlying MSCI United Kingdom 100% Hedged to USD Index consists of stocks traded primarily on the London Stock Exchange with the currency risk of securities included in the Underlying Index hedged to the U.S. dollar on a monthly basis. It yields 4.15% annually.
SPDR MSCI United Kingdom StrategicFactors ETF
It is a smart-beta fund that gives exposure to a combination of factors in stocks – low volatility, quality and value. This fund yields 3.68% annually.
Fiat Chrysler Automobiles N.V. (FCAU - Free Report)
Fiat Chrysler Automobiles NV operates as an international automotive company. It has a VGM (Value, Growth, Momentum) Score of A. The stock has a Zacks Rank #1 (Strong Buy).
Micro Focus International PLC Sponsored ADR (MFGP - Free Report)
The Zacks Rank #2 (Buy) company is an infrastructure software company which develops, sells and supports software products and solutions. It has a VGM Score of C.
Delphi Automotive Plc (APTV - Free Report)
Aptiv Plc is a technology company serving the automotive sector. It has a VGM Score of C. The stock has a Zacks Rank #2.
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