Sainsbury’s shares declined following the company’s announcement of subdued sales growth amid uncertainty surrounding the upcoming UK Budget. In the three months ending September, the grocer reported sales growth of 1.2%, falling short of analyst expectations of 1.9%. Shares in Britain’s second-largest supermarket dropped 2.2%, or 7.9p, closing at 352.1p.

Chief Executive Simon Roberts attributed the softer sales performance to cautious consumer behavior ahead of the government’s Budget announcement scheduled for next week. “Customers are waiting to see what’s going to happen in the Budget,” Roberts said, noting that many households are facing financial difficulties. He indicated that consumers have become conditioned to respond to fiscal policy announcements, which has impacted purchasing decisions in the critical months leading up to the Christmas season.

Despite the disappointing sales figure, Sainsbury’s upgraded its annual outlook, expressing optimism that recent conflict in the Middle East would not have as significant an impact on trading conditions as initially feared. Roberts acknowledged that food inflation had not escalated to the extreme levels anticipated after the outbreak of the conflict, suggesting consumers may avoid severe price shocks this holiday season.

The company also cited challenging comparatives from the previous year as a factor in the slower sales growth. In the same quarter last year, Sainsbury’s sales had risen 2.3%, partly due to disruptions faced by competitors Marks & Spencer and Co-op caused by a cyber attack, which had driven some consumers to Sainsbury’s.

Roberts declined to comment on media reports concerning discussions earlier this year between Sainsbury’s and supermarket rival Morrisons about a potential merger, leaving the status and future of such talks unclear.