
Murray Income Trust PLC 9
Strategic Report Governance Overview General Portfolio Corporate Information Financial Statements
Background
For the UK economy, the year to 30 June 2023 (“the Year”)
has been characterised by high levels of inflation,
monetary policy tightening and concerns around a
potential recession. Equity markets have generally been
more robust than might have been expected against this
backdrop. The UK equity market ended the year +7.9%
higher on a total return basis, although with the path to
that level less than smooth. In September 2022, it was UK
politics that influenced domestic market performance.
The new Chancellor Kwarteng’s “mini budget” sparked a
wave of selling of UK gilts and a substantial weakening of
the pound which led to the Bank of England (“BoE”)
stepping in with emergency measures to stabilise
markets. UK government bond prices rose and the pound
recovered somewhat as first Chancellor Kwarteng and
then Prime Minister Truss resigned and many of their
previously announced tax cut proposals were reversed.
Then, in March 2023, the banking sector created volatility,
first in the US when Silicon Valley Bank collapsed and later
in the month when concerns grew over the viability of
Credit Suisse which was ultimately acquired by UBS.
Less transitory than these events have been the
persistently high level of inflation and the ongoing
response from central banks. UK inflation, as measured by
the Consumer Prices Index, reached 11.1% in October, the
highest level in more than four decades. Annual inflation
fell below 10% for the first time since the summer of 2022
in April when the reading was 8.7%, but data for May
showed that core inflation, which excludes volatile fuel
and unprocessed food costs, continued to rise. The BoE
acted to control inflation by raising interest rates multiple
times over the period, with the policy rate increasing from
1.25% at the start of the Year to 4.5% by the end of June
2023. After the year end, the BoE subsequently surprised
markets by hiking a further 0.5% in July, and then again by
an additional 0.25% in August, as inflation exceeded
expectations, although maintaining their forecast that
inflation will fall rapidly in the second half of 2023.
Despite rising interest rates, the UK has so far avoided a
technical recession (defined as two consecutive quarters
of negative growth in real GDP) and updated forecasts at
the start of the calendar year from the UK’s Office for
Budget Responsibility showed they now expect the
country to avoid a recession in 2023. Economic data for
the UK has been mixed over the period. GDP fell by -0.3%
in the quarter to September, followed by 0.1% increases in
the subsequent quarters to December and March.
Purchasing Managers’ Index data continued to show the
Services sector performing better than Manufacturing.
Labour markets have remained tight and there was
widespread strike action across multiple sectors.
Consumer confidence was reported to be at its lowest
level since records began in 1974, albeit retail sales
remained relatively robust.
This picture of high inflation and interest rate rises is
generally consistent across other developed markets.
Compared to the UK, inflation has softened more in the US
and the Eurozone in recent months and our view is that we
are nearing the end of hiking cycles in those economies. In
the US, although growth has so far fared better than
anticipated in the face of rate tightening and banking
sector concerns, we continue to forecast negative GDP
growth in 2024. China moved away from their zero-covid
policy in the final quarter of 2022. The policy change
initially led to a rise in covid cases which weighed on
growth, followed by a benefit to activity from the
reopening of the economy. However, the reopening
tailwind faded quicker than had been widely expected,
which prompted the government in Beijing to introduce
new measures intended to stimulate the economy. Oil and
other commodity prices declined over the Year over fears
of weakening demand. European gas prices fell sharply
from the mid-2022 highs reached following the Russian
invasion of Ukraine.
Global equity markets performed well over the Year, with
the MSCI World Index returning 19.2% over the period on a
total return basis in US dollar terms. In the UK, the FTSE All-
Share index (the Company’s “Benchmark”) lagged global
markets, rising by 7.9% with the FTSE 100 Index which has
more international exposure increasing by 8.9% and
outperforming the 3.0% rise in the FTSE 250 Index which
has more domestic exposure. From a factor perspective,
broadly-speaking ‘Value’ and ‘Momentum’ outperformed
while ‘Quality’ and ‘Growth’ stocks underperformed on a
relative basis.
Although a relatively small sector, the technology sector
performed strongly over the year mostly for individual
stock specific reasons. On the other hand the weakest
performance was seen in the telecoms sector as its main
constituents BT and Vodafone struggled operationally. In
a broad reversal of the prior year’s performance, some of
the more defensive areas of the market such as
healthcare and consumer staples underperformed while
perhaps surprisingly a number of the more cyclical,
economically-sensitive areas of the market such as
consumer discretionary and industrials outperformed.
Investment Mana
er’s Report