Britain’s retailers rallied Tuesday on hopes that new Prime Minister Liz Truss could temporarily ease the pressure of rising energy bills, but any recovery could be short-lived as spiraling inflation hits consumer wallets.
(Bloomberg) —
Britain’s retailers rallied Tuesday on hopes that new Prime Minister Liz Truss could temporarily ease the pressure of rising energy bills, but any recovery could be short-lived as spiraling inflation hits consumer wallets.
Boohoo Group Plc, the online fashion retailer, and home improvement group Kingfisher Plc led the pack in early trading with shares rising more than 8% and 6% respectively. All major UK retailers from Marks & Spencer Group Plc and Next Plc to Britain’s two largest grocers Tesco Plc and J Sainsbury Plc rose though on hopes Truss will announce a series of moves to tackle the cost-of-living crisis.
“If energy bills are frozen and the rise in National Insurance contributions is reversed as Liz Truss has promised, then shoppers will have a bit more disposable cash to spend on little luxuries rather than worrying about heating and eating,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said in an email.
However, even with the rally, retail remains the worst performing subgroup in Europe’s benchmark Stoxx 600 Index this year, plunging 36% so far in 2022 and on track for its biggest annual decline since the global financial crisis.
Although consumer spending has held up so far because of accumulated savings and pent-up demand, Berenberg analysts say that “a storm is brewing.”
“The worst of the ‘cost-of-living’ crisis is still to come,” analysts including Graham Renwick wrote in a note to clients. “The macro environment has deteriorated significantly, with geopolitical tensions, supply disruptions and surging energy prices, all dealing a major blow to the global outlook.”
Berenberg analysts see discretionary spending in the UK dropping by as much as 25% for lower-income households in 2023, noting that this prediction “could be too optimistic if energy prices and interest rates continue to rise.” Those on higher incomes aren’t immune, with the analysts estimating a 4% decline in discretionary spending for that demographic.
Meanwhile, Jefferies analysts said utilities bills and mortgage repayments are “two key areas of pain” for UK consumers. They estimate income available to discretionary spending falling by more than 6% in 2023-24 at current energy prices.
READ: Retailers Warn of Storm Ahead as UK Sales Growth Stutters
“We now surrender to the weaponization of European gas prices,” analysts including James Grzinic wrote in a note Tuesday. “The scale of the challenges, despite the upcoming bail-outs, is such that we cannot recommend buying any of the seven stocks in this report.”
Jefferies analysts downgraded their recommendations on Associated British Foods Plc, Kingfisher, Sainsbury, Tesco and B&M European Value Retail SA, while Berenberg analysts lowered their ratings on Adidas AG and Hennes & Mauritz AB.
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
