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the UK stock market had a strong start to the year. Energy prices fell. China was reopening after covid, and it looked like inflation and interest rates were near to a peak. But then we had a surprise. Higher interest rates led to the collapse of Silicon Valley Bank as Signature Bank in the US and Credit Suisse had to be rescued by U BS. Understandably, stock markets fell after these events. Inflation is proving to be a bit stickier than most forecasters expected

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and is still around 10% with food prices currently driving it higher. But the Bank of England, the Office of Budget Responsibility and most independent forecasters expect inflation to fall quite rapidly over the remainder of the year. Nevertheless, the Bank of England has continued to raise interest rates, which are now the highest they have been for 15 years at four and one quarter percent. The increase in March was only a quarter of a percent, but the Bank of England have left open the possibility of further increases.

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This is despite expecting the economy to only show minimal growth. Clearly, fighting inflation is for the time being, anyway, more important than supporting growth the UK economy has so far avoided a recession this year, with retail sales consumer confidence somewhat surprisingly remaining resilient. And after the autumn's political turmoil, things have calmed down.

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The UK and the EU reached a deal over post Brexit trading rules in Northern Ireland. Jeremy Hunt delivered a budget which was well received, and overall, there's a greater sense of stability for UK politics.

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Over the quarter, the trust delivered a portfolio net asset value return of 2.9% compared to the FTSE all share index return of 3.1%.

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Positive features were the basic materials, consumer discretionary, consumer staples and energy sectors, which performed well in basic materials being underweight. The large international mining companies was helpful to relative performance, whilst the portfolio's exposure to gold mining companies contributed to a modest degree as gold prices rose during the quarter. In consumer discretionary sector, J D sports fashion was the best performing stock.

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The business is a new CEO with a fresh and ambitious strategy, which includes plans for new stores worldwide. Next, Rex and Whitbread were also a good source of return for the portfolio. Within consumer staples, the strongest performance was Tesco despite a challenging year with high levels of food price inflation and increases in operating costs in energy, both BP and Shell performed well as the oil price stabilised. There were, however, some detractors from performance

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industrials was the weakest performing sector overall,

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with the portfolios holdings of Experian, Ring and Accenture all weaker. This weakness was partially offset by good performances from other holdings in the sector, namely bundle and coats. Given the troubles at Silicon Valley Bank and Credit Suisse, it was unsurprisingly a challenging period for financials, not holding. H S. BC, which managed to emerge unscathed from the banking issues, was a drag on performance relative to the benchmark.

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Unfortunately, insurers Lancashire, Legal and General and Phoenix were weaker over the period, as was Barclays Bank. A good performance from X P s pensions mitigated some of this weaker performance in this sector. In the utility sector, Drax was the largest overall detractor to performance. Their planned carbon capture project wasn't selected for the fast track financing discussions with the UK government. But this is not the end of the matter and they continue to have discussions with UK government

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about the deployment of large scale power bioenergy with carbon capture and storage. In our view, Drax remains key to helping the UK achieve its Net zero targets. This weak performance of Drax was, however, partially offset by strong performances from National Grid and S S E. Another driver of performance is what is referred to as gearing. The trust can use borrowings to accentuate returns. The maximum amount allowed is 25% of the value of the assets.

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For most of the quarter, this gearing was between two and 5%. In periods when markets fall, gearing will reduce returns. Unfortunately, the unpredictable events of the short lived banking crisis in March caused some short term market falls and therefore gearing was marginally unhelpful to performance over the last quarter. Over time, if the portfolio goes up, use of the gearing will improve returns.

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There have been several changes to the portfolio over the last quarter because of doubts about their business strategy. The bulk of the holding of Vodafone was sold in the fourth quarter of 2022 the balance has now been sold. The portfolio's position in coats has also been slightly reduced. We selectively increased a number of the portfolios positions as we increased the level of gearing in the portfolio over the period. In financials, some notable ones were Barclays, Lloyd's Phoenix and Man Group.

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We also increased S, S. E and Dr in Utilities.

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I'm optimistic about 2023. 1 key challenge facing global economies is inflation. Energy prices have been one source of this, and so far they seem to have peaked. Inflation has also been driven by broad commodity prices like iron ore, copper, wheat and palm oil. Most commodities peaked some while ago,

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so it seems plausible that inflation is peaking and we much lower by the end of this year.

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The UK economic outlook is obviously quite cloudy Now. Rising interest rates will be slowing activity and reducing inflation. But so far, consumer spending has been resilient despite these higher interest rates. But it's very important to note that the UK stock market is not the same thing as the UK economy. The majority of listed companies earnings are from overseas,

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and there the economic outlook is brighter. For example, last year, the US government created a range of incentives for investment in infrastructure and renewable energy, and many companies in the portfolio will be exposed to this.

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UK shares have been quite volatile so far in 2023 have already recovered most of the falls from March, following the Credit Suisse and Silicon Valley Bank problems. Um, and with the competing influences of peaking interest rates but slowing economic activity, it's reasonable to expect continued volatility. But looking through this, there are plenty of reasons to be optimistic about the potential for the companies in the portfolio.

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The portfolio is invested in a spread of businesses, with the goal being to have a range of sound companies able to exploit international and domestic growth while being resilient to unexpected events. We look forward to providing our next update after the end of the second quarter,

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yeah.