UK Cost-of-Living Crisis ‘Only Just Begun,’ Says JPMorgan

The cost-of-living crisis facing consumers has “only just begun,” according to analysts at JPMorgan Chase & Co., who downgraded clothing company Hennes & Mauritz AB and flagged risks for other retailers including Marks & Spencer Group Plc.

(Bloomberg) —

Consumer spending on discretionary items in the UK may shrink by a mid-single-digit percentage in 2023 compared to 2019, even if the UK energy price cap is frozen at the current level, retail analysts including Georgina Johanan wrote in a note. Spending may fall 10% without an energy price freeze, they said.

While yet-to-be announced government support measures from new UK Prime Minister Liz Truss “could be meaningful, JPM economists are mindful this brings a risk of faster rate hikes, simply delaying rather than removing recessionary risk,” the analysts wrote. “Winter is (still) coming” for UK consumers, they said.

READ: Retail Rally on Truss Could Be Short-Lived as ‘Storm Is Brewing’

At the same time, retailers face increasing pressure from rising energy and staffing costs, as well as headwinds from the stronger dollar and — for clothing companies — higher cotton prices, the analysts said.

JPMorgan cut H&M to underweight from neutral and put clothing and food retailer M&S on a so-called negative catalyst watch, along with Primark owner Associated British Foods Plc and home furnishings retailer Dunelm Group Plc. Shares in H&M fell as much as 2.8% on Wednesday.

“With earnings momentum set to remain a greater driver of near-term sector performance than potential longer term valuation, we remain cautious across our entire coverage with few exceptions,” the analysts wrote.

Retail has been the worst-performing sector in Europe this year, down 38%. In the UK, the FTSE 350 Retailers Index has slumped 33%.

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