Record Low Inflation Eases Rate Hike Fears: 5 British Picks

A significant decline in inflation across the pond came as a breather for the key U.K. indexes on Apr 18. Lower inflation, along with a nominal increase in wages and disappointing manufacturing and industrial production data ultimately reduced concerns of a rate increase as early as May by the Bank of England (BOE).

Recent economic data also weighed on the pound sterling, which turns out to be a boon for British blue-chip giants that generate their revenues in foreign currencies. Moreover, the International Monetary Fund (IMF) upgraded its growth projection for the United Kingdom recently, in its World Economic Outlook report. Following these developments, investing in big British companies looks like a prudent investment option. 

Inflation Weakest in a Year, Wages Up Only 0.2%

According to the Office for National Statistics (ONS)data, Consumer Price Index (CPI) fell from 2.7% in February to 2.5% in March, reaching its lowest settlement in a year. The CPI inflation data was also lower than the Bank of England’s Monetary Policy Committee’s recent projection of 2.8%.

Additionally, core CPI data came in at 2.3% last month, lower than 2.4% registered in February. Core CPI also reached its lowest level in a year. Key inflation data is slowly moving toward the Bank of England’s (BOE) desired target of 2%. Moreover, decline in food prices also weighed on producer price performance, with Producer Price Index (PPI) coming in at 4.2% in March - its lowest since 2016.

Decline in CPI and PPI data is expected to weigh on the Bank of England’s ability to raise key interest rates as early as in May.Moreover, following a fall in key inflation metrics, prospects of a November rate hike fell to less than 40% from the previous forecast of 50%, per Bloomberg.

Also, the unemployment rate declined from 4.7% to 4.2% during the same period. However, wages including bonuses rose merely 0.2% in the “real terms,” which also weighed on recent rate hike prospects.

Pound Sterling Plummets, IMF Raises Growth Projections

Further, U.K.’s industrial production advanced only 0.1% in February from January, while manufacturing output fell by 0.2% in February. Weak industrial and manufacturing output, along with fall in inflation and slow wage growth also weighed on the pound sterling.

Earlier this week, the pound sterling rose to $1.43, settling at its best levels since Britain decided to exit the European Union (EU) in June 2016. However, following the release of the new economic data, the pound sterling declined. Most of the big British companies and blue-chips have significant exposure in the global market. Thus, a weak sterling is expected to have a positive impact on these behemoths.

On Apr 17, the IMF showed optimism in the British economy’s growth potential as it raised its year-over-year economic growth projection from the earlier 1.5% to 1.6%. IMF gave a stronger projection for the U.K. following a better global economic growth outlook.

5 British Stocks to Buy Now

Following the fall in inflation, wages, industrial and manufacturing production, rate hike worries have abated. Additionally, a weaker pound has brought focus back on British stocks that have strong foothold in the international market. Also, strong U.K. and global economy outlook have made these big British companies a strong bet for investors

In this context, we have selected five British 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 is a designer, manufacturer, distributor and seller of vehicles, components and production system in the global market.

This London-based company has a Zacks Rank #1. The expected earnings growth rate for the current year is 34.19%. The Zacks Consensus Estimate for the current year has improved 8.6% over the last 60 days. Fiat Chrysler Automobiles has gained more than 100% in the last one year.

J Sainsbury plc JSAIY is a major food, general merchandise and clothing retailing company in the U.K.

This London-based company has a Zacks Rank #2. The expected earnings growth rate for the current year is 6.07%. The Zacks Consensus Estimate for the current year has improved 1.8% over the last 30 days. J Sainsbury has gained 8.4% in the last one year.

Barclays PLC BCS is a provider of various financial services in the United Kingdom, other European countries, Asia, Africa, the Americas and the Middle East.

This London-based company has a Zacks Rank #2. The expected earnings growth rate for the current year is 41.57%. The Zacks Consensus Estimate for the current year has improved 7.3% over the last 30 days. Barclays has gained 15.6% in a year’s time.

Aptiv PLC APTV is a manufacturer of vehicle components and provider of safety technology solutions to the global automotive and commercial vehicle markets.

This Gillingham-based company has a Zacks Rank #2. The expected earnings growth rate for the current year is 11.04%. The Zacks Consensus Estimate for the current year has improved 0.4% over the last 30 days. Aptiv has gained 38.9% in the past year.

RELX PLC RELX is a provider of information and analytics for professional and business customers in the United States and globally.

This London-based company has a Zacks Rank #2. The expected earnings growth rate for the current year is 12.62%. The Zacks Consensus Estimate for the current year has improved 6.4% over the last 60 days. RELX has gained 9.2% in a year.

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