iShares MSCI United Kingdom Small-Cap ETF

EWUS

Market cap $40.7M

The U.K. sees mixed signals: slowing growth and easing inflation, but a $150B U.S. deal could spark investor optimism.

The mood of British consumers dampened a little this month, with expectations of a slowing economy and the potential for tax increases later this year threatening an even greater downturn.

The Bank of England held its Bank Rate at 4.00% in September, reflecting a more unified and cautious stance amid persistent inflation risks. MPC members overwhelmingly supported maintaining rates and continuing quantitative tightening, reducing gilt holdings by £70 billion over the next year.

UK inflation remained stable in August, with headline and core CPI readings aligning with expectations and showing only modest shifts in goods and services. Energy and food prices continue to exert upward pressure, but underlying measures, especially in services, suggest some easing in inflationary trends.

UK July CPI surprised to the upside, driven by volatile components like energy and airfares, but underlying inflation pressures remain nuanced. Core and services inflation are still firm, but much of the persistence is due to one-off or volatile factors rather than broad-based demand.

The Bank of England paused rate cuts at 4.25%, reflecting caution amid weakening UK growth and labor market data. Recent inflation data aligns with BoE forecasts, but risks remain two-sided.

Europe ETFs have been outperforming the S&P 500 due to cheaper valuations, upbeat economic growth, a more sustainable earnings pattern, less tech exposure, and cooling inflation.

UK inflation surged in April, driven by higher utility bills and holiday travel, with CPI rising 1.2% MoM and 3.5% YoY, exceeding expectations. Core inflation also accelerated, highlighting persistent services sector price pressures, while goods inflation remained subdued and some categories like clothing saw deflation.

The Bank of England cut its Bank Rate by 25 bps to 4.25%, reflecting a cautious approach amid inflation concerns and slowing growth. The decision was highly contested, with members divided between a larger cut and holding rates steady, ultimately opting for a middle ground.

February's UK CPI inflation data came in below expectations, with headline CPI at 2.8% YoY and core CPI at 3.5% YoY. Energy and food prices contributed to inflation, but energy remains deflationary YoY; food, alcohol, and tobacco prices are significant inflation drivers.