In a dramatic turn of events, two of the UK's leading retail giants, Tesco and Marks & Spencer, witnessed significant declines in their stock prices on Thursday, prompting a broader sell-off amongst UK retailersThis downturn reflects investors' growing concerns about the British economy, overshadowing strong holiday sales reported by these major chains.

During the early trading sessions in London, Tesco, the largest supermarket chain in the UK, saw its shares drop by 4%. Marks & Spencer, on the other hand, faced an even steeper fall of 8.4%. This decline was preceded by warnings from both companies regarding the serious economic challenges facing the UK, exacerbated by a tax reform initiative implemented by the Labour governmentInvestors are increasingly wary of the potential negative impacts of Chancellor Rachel Reeves' stringent budget on the UK's economic landscape.

The repercussions of these changes extended beyond just Tesco and Marks & Spencer

Other retail companies also felt the pinch, with shares in Greggs Plc, a popular sausage roll seller, plummeting by as much as 14%, reaching their lowest point since 2022. Greggs, like many others, expressed concerns about weakening consumer confidence in the UKAdditionally, J Sainsbury, which is set to release its sales figures from the Christmas period, experienced a decline of around 4.5%. Another retailer, B&M European Value Retail, saw its stock drop by 12% after adjusting its earnings outlook downward, highlighting the looming challenges posed by falling consumer confidence and increased operational costs due to the government's tax hikes.

As the turmoil unfolded, the UK bond market became increasingly volatileConcerns about persistent high inflation coupled with fears surrounding Reeves' aggressive fiscal policies led to a dramatic dip in British government bonds, which faltered more than US Treasuries

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The sudden rise in long-term government bond yields eroded the already slim £9.9 billion budget surplus that Reeves had announced during her first budget presentation as ChancellorThe yield on the 30-year UK government bond surged to levels not seen since 1998, illustrating the financial strain the country faces.

Mike Riddell, a portfolio manager at Fidelity, noted in a report that the trajectory of UK bond yields mirrored a global trend driven by rising US Treasury yieldsHowever, there was a worrying divergence in trends recently, as the British pound depreciated while UK bond yields climbed faster than their global counterpartsTypically, rising yields would imply a strengthening currency, but the opposite is occurring in the UK, suggesting severe fiscal challenges loom aheadRiddell warned that if these trends persist, they could signal a consumer boycott or capital flight.

Tradeweb reported that the yield on 30-year UK bonds momentarily hit 5.455% before stabilizing to 5.385%. Concurrently, the British pound sank to a one-year low against the dollar, reaching $1.2239. Since the start of 2025, British financial assets have been caught in a spiraling downturn, exacerbated by fears surrounding a potential global tariff imposed by the U.S., which could affect international trade dynamics and investor confidence significantly.

In this climate of uncertainty, UK retailers are grappling with the strains of persistent inflation and escalating operational costs due to tax reforms that are set to substantially increase wage bills

Notably, Tesco—one of the largest private sector employers—forecasted its wage expenses to rise by £250 million this yearMarks & Spencer echoed these concerns with a warning of a £120 million increase in wage costs.

Despite their robust performance in recent quarters, even the well-established results from Tesco and Marks & Spencer have been unable to mitigate broader issues facing the marketIn fact, Tesco’s market share in the UK is at its highest since 2016, complemented by record food sales for Marks & Spencer during the Christmas season.

However, the mood among British consumers is anything but buoyantMarks & Spencer’s CEO, Stuart Machin, pointed out that while shoppers appeared slightly optimistic leading up to Christmas, there is an underlying “mild negativity” among consumers coupled with anxiety about the future

He stated, “Overall, the sentiment of our customers remains subdued.”

Earlier in the week, another retailer, Next Plc, cautioned that their sales and profit growth this year will significantly decelerate due to the adverse impacts of changes in UK tax policyThe company, with a substantial presence in the UK, indicated that to counterbalance rising costs, they had begun to incrementally raise prices on their products.

Greggs, known for its bakery products, has warned that rising employment costs could result in accelerated expenses by 2025. Similarly, parent companies of brands such as Primark and grocery giant The Co-operative Group witnessed rare stock declines, with The Co-operative Group seeing a drop of more than 5%, while Kingfisher, which owns B&Q, dropped 2.2%.

Ken Murphy, Tesco’s CEO, recently remarked that during the Christmas holiday period, shoppers were active and spending lavishly