Investors gave a big thumbs down to chancellor Rachel Reeves and the first Labour budget for 14 years as the FTSE 100 sank and shares across fmcg suffered a mass sell-off.
London’s blue-chip index closed at its worst level since early August on Wednesday and tumbled by another 1% on Thursday as The Grocer went to press to 8,078.98pts. The FTSE 250 is also down more than 2% this week.
Alongside the market slump, there has also been a rush to sell UK bonds, sending yields higher as investors worried about large amounts of borrowing to come and the prospect of interest rates remaining elevated.
Ten-year gilt yields rose on Thursday to a 12-month high of 4.5%, while yields on two-year gilts hit a five-month high of 4.5%.
“Gilt yields jumped after the market cottoned on to a big increase in government borrowing over the next five fiscal years and that extra tax income from changes announced in the Budget won’t appear overnight,” said AJ Bell investment director Russ Mould.
“That means interest rates could stay higher for longer, which is not good for housebuilders and retailers hoping for reduced pressures on household finances, hence why those sectors were in the red.”
Laura Suter, director of personal finance at AJ Bell, called it “a Budget to batter businesses”.
Retailers, with their large staff bases, were particularly exposed to the new tax burden.
BRC chief Helen Dickinson said the sector was facing more than £2.3bn in increases to employer National Insurance contributions; £367m due to the larger-than-expected rise to the National Living Wage; and a £140m hike to next April’s business rates.
Shares in Tesco fell 2% on Thursday, and more than 4% for the week, with Primark owner Associated British Foods (-2%), Next (-4.1%), B&M Bargains (-3.7%), WH Smith (-4%), Greggs (-2.4%) and M&S (-1.6%) all down, while Sainsbury’s declined just 0.6% on Thursday but was 4% lower for the week.
Producers were hit equally hard on Thursday, with Greencore (-2.7%), Bakkavor (-1.9%), Cranswick (-2.5%), Hilton Food (-1.6%) and Premier Foods (-1.1%) all in the red.
Analysts at Peel Hunt believed consumer companies would look to mitigate the higher costs through pricing, increased automation and cost efficiencies.
Suter added: “While these measures are a cost increase for many businesses, it will inevitably hit the British public in their pockets as companies pass on those costs. Whether that’s lower pay rises for staff, cuts to future hiring or businesses passing on cost increases to customers.”
The surprise announcement to increase the Soft Drinks Industry Levy by 27% over the next five years to reflect the CPI between 2018 when it was first implemented and today hammered listed suppliers.
Nichols tanked 7.4% on Thursday to 1,070p, with AG Barr down 1.4% and Fever-Tree fell 1.3%, while Britvic was flat.
Although, as Peel Hunt pointed out, most products have already been through significant reformulation since 2018 leading to the total sugar in soft drinks decreasing by 35.4% between 2015 and 2019.
The firm added the drinks group had “very limited exposure” to the SDIL, with more than 97% of their product portfolio below the threshold.
Alcoholic drinks makers didn’t escape the depressed sentiment around F&B thanks to the increase in alcohol duty.
Diageo shares are down 7.1% this week, with C&C Group, which also reported first-half results on Tuesday, 9.6% lower and Marston’s tumbling 8%.
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