Marks and Spencer Group PLC (LSE:MKS) was downgraded by analysts as deterioration in the jobs market is set to hit the UK consumer. 

Calculations of UK consumer cash flow present “a constructive view” for disposable income-led growth, analysts at Jefferies said, which led them to keep ‘buy’ ratings on Tesco PLC (LSE:TSCO), Next PLC (LSE:NXT) and J Sainsbury PLC (LSE:SBRY) as they are seen as “key market share winners”.

However, M&S, whose shares rocketed over 180% higher over the past two years, saw its ‘buy’ rating from Jefferies removed, downgraded to a ‘hold’ with a share price target of 370p compared to a last closing price of 345p. 

The UK consumer cash flow calculation from the broker, which factor-in a detailed breakdown of more than a decade of consumer spending and have a close correlation to retail like-for-like sales, shows “a consumer with substantial disposable income recovery over the next year, with fiscal 25/26 growth of 6% (after +1% in 24/25) as rising wages and sinking energy costs offset incremental pressures from housing”.

A more muted jobs market, as confirmed in today’s PMI survey, now adds further risks.

“Balancing a robust recovery of disposable incomes vs muted employment prompts us to take a more selective exposure to UK retail, led by market-share winners,” the Jefferies team said. 

“Our view that the UK food sector will remain competitively attractive is supported by rising capex needs in the industry, the need to backsolve labour cost increases driven by the relatively high labour intensity of grocery, and an ongoing returns-orientated mindset.”

Triangulating rising food inflation of around 3.5% for the industry, offsetting National Insurance Contribution/National Living Wage rises, puts Jefferies Tesco and Sainsbury’s profit forecasts 4% and 5% above the City consensus.

“These defensive virtues, coupled with a largely intra-Europe supply chain at a time of heightened global trade risk, motivate our continued Buys on both stocks,” the analysts said.

As for Next, they view the group as having a “best-in-class management team” supporting an industry-leading return on capital “increasingly unshackled by national/ brand boundaries”, with accelerating free cash flow attractions.

M&S and Primark owner Associated British Foods PLC (LSE:ABF) are seen as the “most likely losers” from incremental UK economic pressure.

Growth opportunities are still perceived for Marks and the valuation is “appropriate”, the analysts said they believe “this makes MKS relatively levered into any bad news on the UK”.