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The note from RBC Capital Markets sees wage growth slowing in 2023, with consumers also set to spend more on food and transport costs.
However, a “‘consumer armageddon’ next year should be avoided if energy price caps are broadly maintained,” the analysts wrote in a note published before the government’s announcement. The UK said Thursday it will limit typical household bills to £2,500 ($2,886) a year.
The cap “should provide some respite for consumers,” RBC said. The plan for a cap had been reported before the government confirmed its intention.
The announcement wasn’t enough to reverse losses for the FTSE 350 Retailers Index, which fell 2.3% on Thursday. Retail is the worst-performing sector in Europe’s benchmark Stoxx 600 Index this year, down 39%.
Shares of Associated British Foods Plc plunged as much as 9.6% Thursday, the sharpest intraday drop since March 2020, after the Primark owner warned that profit in the next fiscal year will be hit by rising energy costs and the strengthening of the dollar. Shares of apparel retailers Next Plc and Marks & Spencer Group Plc also fell.
John Lewis Partnership Plc, which is considered a bellwether for the UK’s retail sector, is due to provide an update next week.
Disposable incomes will fall next year by slightly more than RBC’s previous expectations, retail analysts including Richard Chamberlain wrote in the note to clients Thursday.
Read More: JP Morgan Analysts Say UK Cost-of-Living Crisis ‘Only Just Begun’
One bright spot is that the “consumer desire to spend remains high” after two years of pandemic-related restrictions, they added.
“We expect that this will result in consumers being more selective around their spending choices,” they said, arguing that it will lead to more discounting and “further polarization in performance between the strongest and weakest players in the retail sector.”
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