ETP Investing for U.K. 'Stagflation'

Investors looking to overweight inflation-fighters and non-cyclical equities can do so via exchange-traded products

Jose Garcia-Zarate 17 August, 2011 | 10:51AM

Oh the British weather! Excitingly unpredictable and a sure fire way to strike up a conversation with the natives, it now stands officially accused of causing havoc with the economy. Whether it was unusually cold, as in the fourth quarter of 2010, or unusually warm, as in the second quarter of 2011, it seems as though the U.K. economy can only thrive at the right air temperature. What that right temperature is the statisticians have been unable to tell, which, when you think about it, might be not too bad a thing, as it leads to all kinds of interesting bets. My money is on 16 Celsius.

Weather-impacted or not, the fact is that the recovery in the U.K. is proceeding at a much slower pace than most had anticipated. What the data have shown is a mix of persisting recession in consumer spending, a manufacturing sector propped up by a weak sterling but not increasing in size relative to the overall economy, and a services sector--particularly the much maligned financial segment--kind of saving the day. And all this against a backdrop of persistently high inflation, as measured by the Bank of England’s price stability target of 2.0%. Even the most optimistic of economic analysts must be concerned about the off-chance that the U.K. economy could be drifting into something of a stagflation phase; not 1970s-style stagflation but one befitting today’s globalised economic conditions.

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About Author

Jose Garcia-Zarate

Jose Garcia-Zarate  is a senior ETF analyst with Morningstar Europe.

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