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“Investing is an expectations game so it’s not really a surprise that the market has shrugged off the highest levels of inflation in the UK in 40 years given the number was actually slightly behind forecasts,” says AJ Bell Investment Director Russ Mould.
“People will already be starting to work out when inflation prices might peak and attempting to look through the current interest rate cycle, even if the unpredictability of events in Ukraine make that tricky.
“UK stocks were also helped by a swathe of positive corporate news, at odds with a gloomy economic backdrop.
“Insurer Aviva, which has been busily slimming down under chief executive Amanda Blanc, helped demonstrate its credentials as a honed corporate animal with strong first quarter trading including the best first quarter general insurance sales in a decade.
“For Blanc, who has made an impressive start to her leadership of the business, the low hanging fruit has now been picked and the underperforming operations sold off. She needs to work out how to maintain the momentum behind the business.
“Mr Kipling cakes-maker Premier Foods might not be able to point to an ‘exceedingly good’ outlook but the company is handling cost pressures well, as evidenced by better than expected annual profit and plans to put up the prices of its products.
“While the Mr Kipling range has just enjoyed its best year ever, Premier Foods faces the risk that shoppers will trade down to cheaper, own-brand alternatives amid big pressure on household budgets.
“This will be a good test of its brand appeal including products such as OXO cubes and Bisto gravy granules. Many are store-cupboard essentials, but will consumers be prepared to pay more for the tastes they know and love?
“Just like its counterpart Land Securities, British Land is seeing demand for the ‘right’ kind of offices as it returned to profit for the first time since 2018 and eye-catchingly revealed it is leasing space at the fastest pace in a decade.
“The easing of restrictions may not have led to an immediate return to the office en masse but there’s little doubt that employers are looking to tempt workers back for some of the working week and that means having attractive spaces for them to work in.”
Burberry / Watches of Switzerland
“If you’ve relatively wealthy the current inflationary pressures seen around the world are unlikely to have changed your lifestyle. That’s evident in the latest updates from Burberry and Watches of Switzerland which are still enjoying a boom in luxury goods sales.
“Someone who is minted probably wouldn’t even notice if their energy bills had gone up or the price of their weekly food shop is a little bit more. Therefore, they certainly aren’t going to cut back on luxuries like a nice handbag or a beautiful watch.
“Burberry’s post-Covid recovery still has more to go, given it should see greater business once Asian tourists start travelling the world again. They have historically been keen buyers of Burberry products on their travels. China’s Covid resurgence is a headwind for now, but one might presume this is only a short-term issue.
“Watches of Switzerland has done extremely well in the UK and US and is now expanding into Continental Europe, suggesting there is still a considerable growth opportunity for the business.
“Marketing is key to both Burberry and Watches of Switzerland as it’s all about portraying the right image to potential buyers. Judging by recent results, both are doing this with great success.
“A year ago, there was talk we could see a new era of spending under the banner of the ‘roaring Twenties’. Wealthier individuals stuck indoors during the pandemics would be itching to return to their former lavish lifestyle of yachts, weekends away and flash parties.
“There is every reason to believe this will still happen, even against a backdrop of high inflation. Therefore, it is easy to see why luxury goods companies remain relatively upbeat when so many other businesses are way more cautious about consumer spending.”
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