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Will Royal Wedding Truly Boost UK Economy in Q2? ETFs in Focus

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The U.K. stock market is off to a great start this quarter. iShares Currency Hedged MSCI UK ETF gained about 6.6% in the past one month (as of May 17, 2018), though the fund has added about 3.5% this year. Lately, U.K. stocks in fact staged “the longest weekly win streak in 12 years.” A rally in oil companies and a subdued pound led to these gains.

The market did not mind a sluggish economic growth rate in Q1. And why would it? After all, the U.K. economy has a got a shot in the arm in the form of a royal wedding for Q2. Tabloids, newspapers and market researchers are all engrossed in calculating the expected economic lift from Prince Harry and Meghan Markle's wedding on May 19. The British empire contributes around £1.5 billion to the U.K. economy annually.

Monetary Benefit Expected From Royal Wedding

The likelihood of an uptick in retail sales is expected as fans and well-wishers are likely to purchase royal wedding souvenirs. Food and drinking places are also expected to get a boost, according to consulting firm Brand Finance.

Brand Finance has also projected that the event will inject $1.43 billion (or 1.05 billion pounds) to the U.K. economy. The consultancy actually doubled its projection lately. Another source estimates the royal wedding to boost the economy by more than £80 million.

“There could be a modest boost to GDP growth in the second quarter from the royal wedding and the football World Cup starting in mid-June,” said the chief economic adviser to economic forecasting group the EY Item Club.

According to PwC, Prince William's wedding grossed about £107 million in additional spending, less than 4% of the spending in the U.K. on Black Friday, one of the crucial shopping events of the year.

Will the Royal Wedding be That Profitable for UK?

The overall impact may not be that great; at least Prince William's wedding in 2011 did not lead to a visible uptick in the economy. While retailers, hotels and restaurants will surely benefit, areas like manufacturing production and services’ industries suffer due to this party mood.  

Moreover, ONS data revealed that retail sales jumped in April 2011 during Prince William's time, followed by a decline in the next month. Moreover, per an article published on CNN, no substantial bump in tourist arrivals was noted around the last royal wedding. Rather, around 500,000 citizens flee the country thanks to an extra off day.

Economic Projections Downbeat for Q2

In any case, the British economy saw the weakest growth in Q1 since a 0.1% shrinkage seen in the fourth quarter of 2012. The GDP growth rate of the United Kingdom was up 0.1% sequentially in Q1, which slowed from a 0.4% rise in the previous quarter (read: What European Slowdown? Here Are 4 ETFs Beating S&P 500).

The Bank of England (BoE) has lowered its projections for inflation and economic growth in Q2, considering the Brexit uncertainty. The BoE also guided down its GDP growth expectations for Q2 from the February estimate of 1.8% to 1.4%. Inflation expectations fell to 2.4% from 2.7% as earlier forecast. Pound has been subdued after BoE tapered the growth projections. Guggenheim CurrencyShares British Pound Sterling Trust (FXB - Free Report) has been down 0.6% in the last five days (as of May 17, 2018).

U.K. ETFs in Decent Shape

However, the Bank of England will not likely dive into a policy tightening mode in a low inflation and growth scenario. Probably this is why, currency-hedged U.K. ETFs including Deutsche X-trackers MSCI United Kingdom Hedged Equity Fund and iShares Currency Hedged MSCI United Kingdom ETF have gained in the range of 6% to 7.5%in the last four weeks (as of May 17, 2018) (read: Why These UK ETFs & Stocks Deserve to be in Your Portfolio).

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