(Bloomberg) — Tesco Plc and Marks & Spencer Group Plc 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.
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Shares of Tesco, the largest supermarket group, fell 4% and M&S fell as much as 8.4% 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 Plc down as much as 11% after highlighting concerns about weak consumer confidence. J Sainsbury Plc, which will report its Christmas sales figures on Friday, fell about 4.5%. B&M European Value Retail also fell as much as 12% after trimming the top-end of its outlook.
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 ($12 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 Officer 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.
What Bloomberg Intelligence Says:
Marks & Spencer’s Food sales continue to outperform the UK market with a fiscal-3Q jump of 8.7%, yet Clothing & Home revenue only 1% ahead (marking a subdued start to the quarter) probably explains why management is reiterating — but not increasing, as some anticipated — already punchy expectations for a 17% increase in fiscal-2025 pretax profit. Labor-cost increases from April make fiscal 2026 a more challenging year for profit to advance, despite an improved supply chain, availability and better value.
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— Charles Allen, BI retail-industry analyst
M&S Food Gain Won’t Help Profit Revival Before Costs Jump: React
Earlier this week, Next Plc said its sales and profit growth will slow this year as it weathers the effects of the tax changes. The retailer, which has hundreds of stores across the UK, said it was already slightly pushing up prices to cover higher costs.
Greggs, the British bakery chain, warned employment costs will result in cost inflation in 2025. Associated British Foods Plc, which owns Primark and has a large grocery foods division, fell as much as 3.3% on Thursday too, while B&Q-owner Kingfisher Plc was down 2.2%
–With assistance from Joe Easton.
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