Interactive Investor

Must read: UK Budget preview, Inditex, Burberry, Balfour Beatty

15th March 2023 08:56

Victoria Scholar from interactive investor

Our head of investment rounds up the morning's big news.

European markets have opened lower, with the FTSE 100 in the red, hovering just above support at 7,600. Banks like HSBC Holdings (LSE:HSBA) and Standard Chartered (LSE:STAN) are rebounding after the turmoil of the past few days. However, Prudential (LSE:PRU) has slumped to the bottom of the UK index following its full-year results.

Media reports suggest the ECB is likely to stick to a hawkish hike at its meeting tomorrow, creating a potential headwind for markets which were feeling more ebullient about the prospect of a dovish tilt from central banks in the wake of SVB’s collapse.

Overnight in Asia, China’s industrial output growth fell short of expectations, but this failed to dent markets which followed Wall Street into the green. The major US averages posted strong gains with the tech-heavy Nasdaq leading the charge, up by more than 2%.


Chancellor Jeremy Hunt wants today’s Budget to be boring, in stark contrast to the fiscal fiasco around the mini-budget last September. The UK is undeniably facing a tough economic backdrop, with sky-high inflation, sluggish growth, the cost-of-living crisis and the war in Ukraine. However, the economic outlook has improved in recent months with the UK managing to narrowly stave off a recession, the public purse logging an unexpected surplus in January and other indicators such as consumer confidence, PMIs and retail sales improving. 

The government is unlikely to carry out drastic spending increases or tax cuts because of the backdrop of inflation, as well as the hangover from heavy spending during the pandemic on expensive programmes like the vaccine rollout, the furlough scheme and track and trace. Instead, Hunt will try to focus on fiscal prudence while still providing enough support measures to prop up the Conservatives’ popularity at a time when Labour is steaming ahead in the polls. 

All eyes were supposed to be on the Budget this week but the collapse of Silicon Valley Bank, with concerns about financial contagion, has superseded the famous red box. It has been a volatile week for financial markets as investors weigh up the negative economic impact from the bank’s failure versus the prospect of more accommodative monetary policy from the Bank of England and the Federal Reserve. 

The government wants this to be a Budget that encourages more people back to work, helping to relieve the UK’s labour shortages which are stifling businesses and adding to price pressures in the economy. That could be through increased help on childcare costs for toddlers as well as measures to delay retirement and encourage more older people back into the workforce. 

This morning, the government announced it will maintain the Energy Price Guarantee at £2,500 for another three months, easing pressure on energy bills. The Chancellor could also extend the 5 pence fuel duty cut for another year. While corporation tax is set to jump from 19% to 25% in April on profits over £250,000, the Chancellor is likely to unveil tax breaks to soften the blow. 

The post-pandemic revival of inflation has eroded wages, most acutely in the public sector, prompting widespread industrial action in the UK. The Treasury is likely to address the falling real wage problem amid hopes of a deal between ministers and NHS trade unions. However, the Bank of England has expressed concerns about the prospect of a wage-price spiral. But other economists are less concerned about the potential inflationary impact of raising public sector pay, given the gap between public and private sector wages. 


Inditex reported full-year net income up 27% to 4.1 billion euros on sales up 17% to 32.6 billion euros, broadly in line with expectations. In the first year under Marta Ortega, the daughter of Inditex’s founder Amancio Ortega, shares have gained almost 30% year-on-year. The owner of Zara has benefitted from the return to physical stores and demand for fashion after lockdowns ended and socialising resumed. It enjoyed a successful period of sales over Christmas and has managed to weather the inflationary backdrop by raising prices without significantly denting demand. 

Zara has an exceptional ability to deliver the latest fashion trends to the mass market. This affordable luxury segment has proven to be impressively resilient amid the backdrop of slowing growth, cost of living crises across many of Inditex’s major markets as well as softening consumer confidence and falling real wages. Although shares had a tough time in the first quarter of 2022 with the onset of war in Ukraine and inflationary pressures, shares have been staging a recovery off the April lows.

Shares are giving back some gains today, caught up in broader risk-off sentiment after a more than 10% jump year-to-date. Given that Inditex tends to be among the most favoured stocks in the sector, perhaps investors were disappointed that its results were in line rather than surpassing analysts’ expectations today.


Burberry Group (LSE:BRBY) has appointed Kate Ferry as chief financial officer, taking over from Julie Brown who is moving to GSK (LSE:GSK). Ferry is currently CFO at Formula One and McLaren Group and will start at the luxury brand in September. There have been significant changes in the C-suite at Burberry over the last year with Jonathan Akeroyd taking over as CEO last March and now a change in finance chief. 

After a difficult first quarter last year, shares in Burberry have been staging a recovery, buoyed by hopes of the release of strong pent-up demand from Chinese shoppers after Beijing finally dismantled its strict anti-Covid lockdown measures. The stock is up by a third over the past six months, however shares have been under pressure in recent weeks amid broader weakness for the FTSE 100 which has been retreating from the highs. Burberry has also been caught up in the wider market turmoil over the last week with the collapse of Silicon Valley Bank which has sparked nervousness among investors.  


Balfour Beatty (LSE:BBY) reported a 42% increase in underlying profit for 2022 at £279 million versus £197 million in 2021. Its order book increased by 8% to £17.4 billion versus £16.1 million year-on-year. The infrastructure firm announced a £150 million share buyback for the third consecutive year and announced a 17% increase to its full-year dividend. 

Balfour Beatty is returning cash to shareholders through a share buyback and a dividend increase, in a sign of confidence from the infrastructure company about its outlook. At a time when many businesses are cutting dividends to combat the sluggish macroeconomic backdrop, income investors will be encouraged by the increased shareholder pay outs.

Balfour Beatty has also benefitted from portfolio diversification both in terms of its variety of operations as well as its range of geographies. Shares have rallied by more than 35% over a one-year period and are trading higher today.

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