As per recent official data, inflation in the U.K. has taken a favorable turn, falling to its lowest level in three years. According to the Office for National Statistics (ONS), as quoted on Yahoo Finance, consumer prices rose by 1.7% in September, down from 2.2% in August, primarily due to decreased gas and airline costs.

With the consumer price levels falling below the Bank of England’s (BOE) benchmark level of 2% for the first time since 2021, market expectations of another rate cut in November has increased. The central bank's rate-setting committee is expected to lower its main interest rate from 5% to 4.75% when it meets again in early November.

Breaking Down the Inflation Data

Core inflation which excludes volatile categories like energy, food, alcohol and tobacco, dropped to 3.2% in September from 3.6% in August and fell shy of the 3.4% forecast from a Reuters poll, as quoted on CNBC.

Price increases in the services sector, which constitutes about 80% of the British economy, slowed considerably to 4.9% in September from 5.6% in August, marking the lowest rate since May 2022.

Increased Rate Cut Signals From the Market

According to CNBC, money market expectations for a 25-bps rate cut in November surged from 80% to 92%, with another reduction in December almost fully priced in. If the BOE implements two more 0.25% rate cuts this year, its key interest rate would fall to 4.5%, from the current level of 5%.

The reduction in the interest rates is expected to provide the much-needed relief to British consumers, boosting the low confidence levels. Lowering the interest rates to 4.5%, as per market forecasts, signals a path to reduced mortgage, credit card and loan payments, impacting savings rates for millions across the U.K.

Per BBC, wage growth slowing down to its lowest rate in over two years in the U.K. also boosts expectations for a UK interest rate cut in November.

Back to Growth Ways

According to Reuters, following two months of stagnation, the U.K. economy grew 0.2% in the month of August, aligning with the expectations of economists surveyed in a Reuters poll.

As per data from ONS, all major sectors experienced growth in August, with disappointing performance in the services sector, being offset by a robust recovery in manufacturing and construction. This sets the stage for the British economy growing in the second half of 2024.

According to gov.uk, at the International Investment Summit, by UK Prime Minister Keir Starmer, it was announced that approximately 38,000 jobs are expected to be created across the U.K., fueled by £63 billion in investments aimed at enhancing economic growth.

ETFs in Focus

Investors can increase their portfolio exposure to the U.K. with the following pure-play U.K. ETFs to take advantage of the country’s favorable inflation data and rising forecasts of further rate cuts in the remainder of 2024.

iShares MSCI United Kingdom ETF (EWU Quick QuoteEWU - Free Report)

iShares MSCI United Kingdom ETF seeks to track the performance of the MSCI United Kingdom Index with a basket of 78 securities. The fund has gathered an asset base of $3.31 billion and charges an annual fee of 0.50%. EWU has a dividend yield of 3.92%.

iShares MSCI United Kingdom ETF has top exposure to the financial sector (19.9%). EWU has allocated 89.56% of its assets to large-cap securities, making the fund a comparatively safe investment. The fund has a positive weighted alpha of 16.46, which gives cues of a continuing upward trend.

EWUhas gained 7.84% over the past three months and 23.01% over the past year.

Franklin FTSE United Kingdom ETF (FLGB Quick QuoteFLGB - Free Report)

Franklin FTSE United Kingdom ETF seeks to track the performance of the FTSE UK RIC Capped Index with a basket of 103 securities. The fund has gathered an asset base of $724.5 million and charges an annual fee of 0.09%. FLGB has a dividend yield of 4.14%.

Franklin FTSE United Kingdom ETF has top exposures to the financial sector (19.71%). It has allocated 869.23% of its assets to large-cap securities, making the fund a comparatively safe investment. The fund has a positive weighted alpha of 17.54, which gives cues of a continuing upward trend.

FLGB has gained 8.60% over the past three months and 24.39% over the past year.

First Trust United Kingdom AlphaDEX Fund (FKU Quick QuoteFKU - Free Report)

First Trust United Kingdom AlphaDEX Fund seeks to track the performance of the NASDAQ AlphaDEX United Kingdom Index with a basket of 75 securities. The fund has gathered an asset base $76.9 million and charges an annal fee of 0.80%. FKU has a dividend yield of 3.57%.

First Trust United Kingdom AlphaDEX Fund has top exposures to the financial sector (22.70%). The fund has almost equally allocated its assets between large-cap and mid-cap securities, making it less stable in times of increased volatility. FKU has a positive weighted alpha of 27.13, which gives cues of a continuing upward trend.

FKU has gained 10.28% over the past three months and 32.27% over the past year.

iShares MSCI United Kingdom Small-Cap ETF (EWUS Quick QuoteEWUS - 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 227 securities. The fund has gathered an asset base of $58.8 million and charges an annual fee of 0.59%. EWUS has a dividend yield of 2.80%.

iShares MSCI United Kingdom Small-Cap ETF has top exposures to the industrial sector (20.87%). The fund has allocated its assets more toward mid-cap securities (54.88%), compared to small caps (39.79%) and has a positive weighted alpha of 26.12, which gives cues of a continuing upward trend.

EWUShas gained 12.17% over the past three months and 30.63% over the past year.