European Credit Strategy: Tight Spreads, Tighter Wallets

Research evidence excerpt

European Credit Strategy: Tight Spreads, Tighter Wallets

Deutsche Bank

Research

Europe Credit Strategy Date

18 June 2026

European Credit

Strategy

Tight Spreads, Tighter Wallets

Emilie Calder

Job market worries and rising energy costs are posing headwinds to the UK

European Credit Strategist

consumer. And despite the sharp drop in energy prices (Brent Crude is down nearly +44-207-330-7500

-10% since Friday's close) since the US and Iran announced a peace deal to end the

war and reopen the Strait of Hormuz, we believe this risk is likely underpriced at Cem Keltek

current valuations, particularly as lagged impacts of the energy shock are still set

+49-69-910-48370

to flow through to the UK consumer in coming months.

Steve Caprio

One way we can see this: The Asda UK Household Income Tracker is a measure of Head of European and US Credit Strategy

"discretionary income", reflecting the amount remaining after the average UK +44-20-754-16176

household has had taxes subtracted from their income and bought essential items

such as groceries, electricity, gas, transport costs and mortgage interest payments

or rent. The Income Tracker measures the amount left over to spend on

discretionary purchases such as leisure and recreational goods and services.

In April, its y/y trend declined for the 3rd month straight, dipping back into negative

territory for the first time since May 2025. Driving the weakness at this time last year

were UK National Insurance tax increases coming into effect in April 2025,

significantly increasing employment costs, pushing up the cost of living and

squeezing UK household spending. Today, the Asda Income Tracker is showing a

similar level of weakness, despite an April decline in the Ofgem energy price cap.