British retail sales may have beaten economists forecasts in July but further ahead the prospects of general retailers are not so good as consumers fret about tax rises in 2010, according to Execution Research.
It has just downgraded the UK general retail sector to "underweight" from "overweight" on the basis of its latest survey into consumer spending and sentiment.
Caroline Gulliver, analyst at Execution says:
"Our monthly survey of 2,000 consumers uncovered the following trends. UK consumers think that house prices have stabilised, their confidence has stabilised and spend in July has been good. The outlook for August is positive too. However, we fear that this confidence might be misplaced as we consider the outlook for 2010.
"We can see that in addition to widespread unemployment fears, 38% of consumers believe that their tax bills will rise next year, which will act as a drag on consumer spending. Our real concern is if, or when, the 57% of consumers who expect no change or who are unsure, decide their tax bills are going to rise. For this reason we have downgraded several of our sales and profit assumptions for 2010 to 2012."
Execution says it has upgraded several of its like-for-like sales and profit assumptions for the current year because of the positive outlook for August.
The general retail sector has risen 80% from its November lows and outperformed the market by 55% in that time. Execution feels the positive momentum in current retail sales is now more or less fully reflected in stock prices; "the deteriorating outlook for UK consumers' discretionary spend is, however, perhaps not."
Execution has changed its recommendations on several retailers. It moves DSG to "hold" from "sell", Home Retail and Kesa Electricals to "sell" from "buy", J Sainsbury to "hold" from "sell" and Kingfisher to "hold" from "buy".
