Throughout 2023, selecting some of the best UK shares to buy each month has remained somewhat of a challenge. This is hardly surprising given how the country’s economic forecasts continue to shift; this time last year, most analysts were expecting the base rate to peak at 3% at most, and it’s now at 4.5% and expected to continue rising.

Partially, this is due to stickier-than-expected inflation, with the CPI rate still at 8.7%. While this figure fell from 10.1% between March and April, analysts had been expected a larger fall given the 2% jump between the same months last year. Worse still, core inflation, which strips out volatile items such as food, has risen from 6.2% to 6.8%.

For context, in mid-March the Office for Budget Responsibility predicted a drop in CPI inflation to 2.9% by the end of the year. This now seems unattainable, with the Bank of England now expecting the crucial figure to hit 5% by December, and then 2% by year-end 2024.

Simultaneously, dire recessionary warnings from multiple respected bodies seem to have dissipated, with the OECD now expecting the UK to avoid a technical recession. But while a recession may be averted, the UK’s economic headaches are not over.

The tax burden —both for individuals and businesses — is now at its highest level since World War II. Corporation tax has risen for larger companies from 19% to 25% and the super-deduction has ceased, directly impacting AstraZeneca’s decision to build its new state-of-the-art factory in Ireland.

Larger companies including CRH, Flutter, ARM, Shell, Ferguson, and BHP have either left London already or are considering it. ARM’s decision not to dual list in the UK is a particularly damaging problem, as this was the status quo before it was sold off to Softbank some years ago.

Legal & General CEO Nigel Wilson recently referred to the UK as a 'low growth, low productivity, low wage economy,' while Marks & Spencer CEO Stuart Machin believes that London is on 'life support' following the removal of tax-free shopping for foreign tourists.

One key issue is that the country is experiencing both low growth and high inflation. This danger zone is a problem, because the key to increasing growth is cutting interest rates, and the Bank is going in the opposite direction to curtail inflation.

This all makes selecting some of the best UK shares to buy as we enter H2 2023 an art rather than a science.

Best UK shares to watch

1. Marks and Spencer (LON: MKS)

Marks & Spencer is an iconic heritage British retailer, operating within the home, clothing, and food sectors. The company saw a remarkable turnaround in recent full-year earnings despite the cost-of-living crisis and has risen by 51% year-to-date to 191p.

Given that M&S shares were changing hands for as much as 257p in January 2022, there could be further recovery to come. The company saw revenue increase by 9.6% to £11.93 billion, while profit before tax rose by 21.4% year-over-year to £475.4 million. It achieved market share growth in both its food and clothing & home segments, outperforming peers in the supermarket industry, with solid 11.2% growth in clothing sales.

This positive financial performance could now position the company to achieve an investment-grade credit rating, in addition to resuming dividend payments in November, providing added value to shareholders who bought the dip last year. Hoping for further growth, M&S aims to regain its position as a leading retailer and return to the FTSE 100.

Last year, a YouGov poll named M&S the ‘UK’s most trusted brand,’ and given the growth, it seems to be regaining some of the unquantifiable brand strength it has lost over the years.

2. Rolls-Royce (LON: RR)

Rolls-Royce has seen similarly positive share price movement thus far in 2023 — rising 50% year-to-date to 149p apiece. Much of this rise is down to the pandemic recovery; full-year results saw underlying operating profit rise by £238 million to £652 million, free cash flow increased by £2 billion to £505 million, and net debt fell sharply to £3.3 billion.

Engine flying hours rose by 35%, driving up revenues in Rolls’ civil aerospace division which generates the lion’s share of revenue as normal European travel resumes.

CEO Tufan Erginbilgic, who took over at the start of the year, has been fairly critical of the FTSE 100 company prior to his arrival. He’s labelled it a ‘burning platform,’ called the power system division ‘grossly mismanaged,’ argued that full-year results fell short of the company’s potential and believes that Rolls has the worst leverage he’s ever seen.

A much-needed strategic overview is underway with goals to be set shortly — these will almost certainly include regaining its investment-grade credit rating, paying down even more debt and reinstituting dividends. There are interesting parallels with M&S, given both companies’ status as heritage businesses.

One key catalyst going forward is the continued development of the UltraFan power gearbox, which not only runs on 100% sustainable aviation fuel but also delivers 10% efficiency savings over the current global standard, the Trent XWB. Erginbilgic has been careful to highlight the successful relationship between the company and government as it hopes to win further funding for its small modular nuclear reactors.

3. Greggs (LON: GRG)

Greggs is as close to venerated as a UK bakery chain can be — like McDonalds, it has a certain indefinable brand presence, as shown by its recent tie-up with Primark.

In Greggs’ most recent trading update, like-for-like sales rose by 17.1% to £609 million, while the chain also opened up 88 net new shops. With food inflation is hovering just under 20%, some analysts remain concerned about its ability to grow, but the company is still planning to open more shops and extend opening hours in its higher-traffic locations.

Arguably, its value offering could benefit from consumers down switching their brand from more premium offerings, while simultaneously current customers view the occasional pasty as an affordable, if now slightly more expensive, treat.

Liberum considers that sales could double over the next five years, while Barclays thinks that the company is a solid long-term compounder. One key risk, however, is that the rapid historical growth so far may make growth through H2 2023 and beyond look weaker by comparison.