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UK inflation data for July came out today (August 20), showing the highest price level increase since January 2024. The 3.8% reading means that both businesses and consumers could start to feel the pinch of higher prices. Yet it’s not all bad news. There are some UK stocks that can outperform in this environment. Here are two to consider.
Rising premiums
The first is Beazley (LSE:BEZ). The FTSE 100 specialist insurer is up 4% over the past year. It operates through several key lines of business, including cyber risk, marine, aviation, property and more. It serves a diversified range of clients, ranging from large corporations requiring liability or cyber coverage to SMEs needing business interruption policies.
To me, it stands out for its potential to thrive amid rising inflation. This partly stems from the fact that if inflation stays high, interest rates will remain elevated as well. Historically, insurers tend to fare well in such environments because higher rates enhance their investment yields.
Additionally, Beazley has begun increasing its insurance premiums. I expect the pace of increase to outpace inflation, with the company having the flexibility to raise prices further if needed. After all, insurance is a necessity for many people. Granted, it can’t raise premiums to a ridiculously high level, as clients will go to competitors. But there’s definite scope to boost profits even after factoring in higher inflation.
Finally, Beazley doesn’t make a physical product. This makes it less exposed to rising input prices that come as a result of inflation. However, one risk is higher claims activity. This was a factor in the 45% drop in half-year pre-tax profits, and so needs to be monitored carefully.
Long-term contracts
A second stock is Tritax Big Box REIT (LSE:BBOX). It’s a real estate investment trust (REIT) listed on the FTSE 250 that specialises in owning and managing large-scale distribution centres and logistics warehouses across the UK.
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These big-box facilities are typically very large, modern properties located near key transport hubs and motorway networks. It makes money from the rental income of long-term leases held by blue-chip companies such as Amazon and Tesco. The reason I like it during high inflation periods is because most of the contracts are inflation-linked. This means that as inflation increases, so does the rental income. This protects earnings against inflation, giving it resilient income streams even amid broader economic volatility.
Further, clients of the REIT are large companies that should be able to weather the storm of high inflation. That means the risk of default or cancelling contracts due to going out of business in the short term is limited.
Of course, one risk is that the interest costs on new debt will increase. When Tritax develops a new project, it does finance some of it from the banks. Therefore, if high inflation causes interest rates to stay elevated, it could put some pressure on rising costs.
I think both stocks can be considered by investors as a result of the latest inflation news out today.
