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(Bloomberg) -- Tesco Plc and Marks & Spencer Group Plc were hit by a selloff in UK retailer stocks, as mounting concerns about Britain’s economy and the impact of Labour’s tax-raising budget outweighed solid holiday season sales.
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Shares of Tesco, the largest supermarket group, fell as much as 4% and M&S as much as 8.4% in London, after both highlighted the UK’s economic challenges and the increase in costs they face due to higher payroll taxes. Sausage roll-seller Greggs Plc also slumped after it warned about weak consumer confidence.
UK assets are caught up in a global rout sparked by incoming US President Donald Trump’s latest threats to impose trade tariffs, and fears that inflation will remain elevated for longer than expected. That has compounded concerns about the UK’s finances and the slim fiscal headroom left by Chancellor of the Exchequer Rachel Reeves as she tries to restore ailing services.
The sudden rise in gilt yields is threatening to absorb her £9.9 billion ($12 billion) margin, while her revenue-raising measures worth more than £40 billion have cast doubts about prospects for the economic growth she needs.
Retailers have been particularly hard hit as they face a major increase in staff salaries. Tesco, the biggest private sector employer, said higher national insurance rates — a payroll levy — will add £250 million to its wage bill this year. M&S has warned of a £120 million hit from the budget measures.
Not even solid performances from Tesco, whose market share reached levels not seen since 2016, and M&S, which had its biggest one-day food sales record this Christmas, could offset wider market concerns.
Investor reaction “could be a signal that while UK sentiment has softened particularly since the budget, weakness may well have more to run,” said Stuart Gordon, senior industry analyst at Bloomberg Intelligence.
Shoppers at Tesco splurged over Christmas but now as they “look at the political environment” there’s “plenty for people to think about,” Tesco Chief Executive Officer Ken Murphy said on an earnings call.
Stock Drop
Other retailers also slumped with J Sainsbury Plc, which will report its Christmas sales figures on Friday, down as much as 4.9%.
B&M European Value Retail slid as much as 12%, hitting the lowest since May 2022, after trimming the top-end of its outlook. Its shares have fallen 45% in the past year, leading to the stock’s relegation from the FTSE 100 Index.