LIVE MARKETS-British retail sector: budget worries and resilient spending

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BRITISH RETAIL SECTOR: BUDGET WORRIES AND RESILIENT SPENDING

The noise around possible tax rises in Britain is set to rumble on all the way to finance minister Rachel Reeves' budget on November 26, bringing prolonged uncertainty to British markets, including its retail industry.

"We expect sentiment on the UK retailing sector to ebb and flow, between a drumbeat of doom in the run-up to the Nov 26 budget, and likely resilient retail spend given yoy increases in household cashflow," RBC equity analysts write.

British retail sales rose by a stronger-than-forecast 0.5% in August, official data showed last week, but RBC believes consumers may be more considered with their purchases until there is more clarity.

"We think that we're likely to see some consumer nervousness ahead of the Budget which may impact discretionary spending, particularly for big-ticket purchases," RBC says, a possible negative for the likes of Kingfisher KGF.L, Dunelm DNLM.L and Currys CURY.L.

But it's not all doom and gloom. RBC believes BoE rate cuts are yet to feed through and the central bank could still lower rates further.

The bank also believes disposable income should remain positive year-over-year and that consumers may become battle hardened to negative media coverage.

"We favour structural growth and self-help stories, and at current valuations, we have a preference for Next and JD Sports, over ABF and III," RBC says.

(Samuel Indyk)

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