iShares MSCI United Kingdom Small-Cap ETF [EWUS] Stock Forecast

Amid a promising decrease in UK inflation rates, investors are presented with an opportune moment to reconsider their exposure to UK-based ETFs.

UK GDP fell by 0.3% in March, though prior strength means that the first quarter as a whole came in slightly positive. The data is hard to read right now, amplified by the extra Bank Holiday in May.

A raft of economic data due over the next week may well decide whether the Bank of England hikes rates by another 25 basis points in May. Formally, the Bank has told us that any further tightening could be needed if we see fresh signs of “inflation persistence”.

With the Bank of England increasing the interest rates by 25 bps, how are the ETFs performing?

iShares MSCI United Kingdom Small-Cap ETF covers over 250 small-cap UK stocks. EWUS is well exposed to industrials that are currently struggling with margin challenges.

Between 2003 and 2009, the domestic sector attracted £10.4bn, while its global equivalent took in just £1.3bn, with the UK ahead in terms of asset gathering for each of these years. UK equity income was further hit by the suspension of many dividends from FTSE 100 members in the COVID crisis.

The BoE has kept its options open this month amid financial market turmoil. But assuming the tentatively encouraging trends we've seen in price setting and wage growth numbers continue, we'd expect a pause in May.

The latest official labour market data showed signs of cooling pay growth, confirming earlier signals from survey data of a softening jobs market. Data from the Office for National Statistics (ONS) showed average employee earnings (excluding bonuses) growing at an annual rate of 6.5% in the three months to January.

The UK barely managed to avoid recession in 2022 with the country's economy set to contract in 2023

Services inflation is the bit of the CPI basket that the Bank of England cares most about right now, and January data saw a surprise dip. Headline CPI ticked lower to 10.1%, which was partly down to a near-4% fall in petrol/diesel prices across January.