Shares in Britain's biggest supermarkets fell sharply after reports that the government is urging retailers to voluntarily limit prices on staple groceries in return for an easing of regulations.
Tesco PLC (LSE:TSCO) was down 2.8% and J Sainsbury PLC (LSE:SBRY) fell 1.8% as investors digested the implications of a policy that the British Retail Consortium (BRC) dismissed as unworkable.
The Treasury is understood to have asked supermarkets to freeze price rises on key products such as eggs, bread and milk, offering in return an easing of packaging policies and a potential delay to rule changes around healthy food.
The BRC said the proposals would "force retailers to sell goods at a loss," with one unnamed retailer describing the idea as "crazy" and the act of a "desperate" government.
Another told the BBC that the government should instead remove the tax burdens it has imposed on the sector, arguing that prices would fall naturally as a result.
Food price inflation currently stands at 3.7%, above the headline rate of 3.3%, with some industry groups warning it could approach 10% by year-end.
Retailers point to a combination of factors driving costs higher, including rises in the national living wage and employers' national insurance contributions, alongside surging fertiliser and animal feed prices linked to disruption in the Strait of Hormuz caused by the US-Israel war with Iran.
BRC chief executive Helen Dickinson said fierce competition between supermarkets was already keeping prices in check, and that the real challenge was "higher energy and commodity costs resulting from the Middle East conflict, and the soaring cost of the government's domestic policies."
Alongside the price cap proposals, Chancellor Rachel Reeves announced new powers for the Competition and Markets Authority to name and shame firms that widen margins during economic shocks, saying she would "not tolerate anyone exploiting a crisis to make a quick buck."