Retailers fall, hit by rising investor concerns about UK economy

LONDON – Tesco and Marks & Spencer Group fell, prompting a broader selloff in UK retail shares, as concerns about Britain’s economy outweighed solid holiday season sales by two of the biggest store chains in the country.

Shares of Tesco, the largest supermarket group, fell 4 per cent and M&S fell as much as 8.4 per cent in early trading in London, after both highlighted the economic challenges in the UK and the significant increase in costs they face as a result of tax changes by the Labour government. 

Other retailers also slumped with sausage roll-seller Greggs down as much as 11 per cent after highlighting concerns about weak consumer confidence. J Sainsbury, which will report its Christmas sales figures on Jan 10, fell about 4.5 per cent.

Concerns over the strength of the UK economy and fiscal plans by UK Chancellor Rachel Reeves are growing, with the UK among the hardest hit by a rout in global bond markets this week, driven by investor concerns over levels of public debt.

The sudden rise in gilt yields is threatening to absorb the slim £9.9 billion (S$16.7 billion) margin Reeves had left after announcing her first budget as chancellor in October. 

Retailers have been particularly hard hit by Reeves’ budget as they face a big increase in staff salaries. Tesco, which is the biggest private sector employer in the UK, said its wage bill will rise by £250 million this year, while M&S has warned of a £120 million hit. 

Not even solid performances from Tesco, which hit its highest market share since 2016, and M&S, whose food arm had its biggest one-day sales record this Christmas, could offset wider market concerns. 

Consumer sentiment weakening is also a concern for retailers. 

“If you looked pre-Christmas customers were slightly more optimistic,” said M&S chief executive Stuart Machin. But there is now “slight negativity and anxiety” among shoppers, he said. 

“The overall sentiment from our customers does remain flat,” he added. BLOOMBERG