Tesco share price retreated by over 2% on Wednesday, before paring back some of the losses as the UK government pushed retailers to cap price increases amid the ongoing Iran war. It slipped to 443p, its lowest level since February 4, and 10.85% below its highest point this year.

UK government pushes retailers to limit price hikes

Tesco share price pulled back sharply, mirroring the performance of other UK retail groups like Sainsbury’s and Marks and Spencer. 

This retreat happened after the Office of National Statistics (ONS) published an encouraging inflation report. Data shows that the headline and core consumer price index rose at a slower pace than expected in April. However, analysts warn that prices will jump in July when Ofgem revises energy prices.

The main reason why Tesco shares are pulling back is that the UK government is pushing retailers not to hike prices on essential items such as eggs and milk. In return, the government is promising these companies to ease some policies on packaging and healthy eating.

A move to cap price increases would push retailers like Tesco and Sainsbury’s to sell products at a loss. In a statement, the British Retail Consortium (BRC) warned that the policies were unworkable and urged the government to remove taxes that push prices higher.

The government is making these policies at a desperate time when its approval ratings have plunged. There are concerns that Keir Starmer will not finish his term after the last local election in which his party suffered major losses.

Tesco’s market share gains

The most recent results showed that the company’s business is doing well despite the rising competition. Its market share continued growing, as its revenue jumped. It made over 66.5 billion in revenue last year, up by 4.6% YoY. In contrast, the British economy grew by 1.3%.

Its profit before tax rose to over 2.4 billion pounds, while the diluted earnings-per-share (EPS) rose by 15% to 27.1p. As a result, the management continued to return funds to shareholders. It paid 937 million pounds in dividends and repurchased shares worth over 1.45 billion pounds. It has returned over 4.3 billion pounds in capital through buybacks since 2021.

The next main catalyst for the TSCO share price will be the upcoming trading statement that comes out on June 18.

Tesco share price technical analysis

TSCO stock chart | Source: TradingView

The daily chart shows that the TSCO stock is not doing well and is now hovering near its lowest point since February. It has now plunged below the 50-day Exponential Moving Average (EMA).

A closer look shows that the stock has formed a triple-top pattern at 495p, its highest point in February, March, and April this year. A triple-top is one of the most common bearish reversal patterns in technical analysis. It moved slightly below the neckline at 450p and then pulled back.

Therefore, there is a risk that the stock will remain under pressure in the near term. If this happens, it may drop to the key support level at 411p, its lowest point in January this year.

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