A sell-off affecting some of the UK’s largest retailers has extended into a second day, after an analyst warned the spectre of higher taxes in the Autumn Budget, a softening labour market and sticky inflation will dent consumers’ spending habits.

Shares in AB Foods, Wickes and B&Q-owner Kingfisher all shed between one and 1.5 per cent on Wednesday morning, meaning all three firms have now seen at least five per cent wiped off their valuation since the start of the week.

Along with high-street darling Next, the trio of retailers were included by Deutsche Bank (DB) analyst Adam Cochrane in a group of ‘least preferred’ retail stocks on fears they are worst-placed to weather dwindling consumer spending power amid a tricky macroeconomic backdrop.

“We see a combination of more pressure on the consumer, cyclical downside in the categorywhich provides increased earnings risks and valuations which do not adequately reflect this,” Cochrane wrote in a wide-ranging note that also revealed stark findings from DB’s latest ‘Fear Index’.

The bank’s proprietary gauge of consumer sentiment found Brits across all income categories to be more fearful now than over the historical average since mid-2019 and more pessimistic than at any point since the pandemic.

Bleak outlook ahead

This negative sentiment is likely to worsen further over the coming months, analysts said, as inflation pressures persist and real wage growth slows.

Several months of speculation over which taxes will rise in at the Autumn Budget – expected in November – will also have a “negative impact on spending” they wrote, particularly among higher earners who are “more sensitive to the news cycle”.

DB also argued the budgets of lower income households will be stretched more than they already are if predictions that inflation will remain sticky for much of the rest of the year come to pass.