Tesco and M&S sound alarm over rising costs: Retail giants face Budget hit after bumper Christmas trading

Retail giants Marks & Spencer and Tesco have sounded the alarm over Britain’s “uncertain” economic outlook and tax rises, even as they revealed strong Christmas trading.

M&S reported £4.06 billion in sales for the three months to December 28, which was a 5.6 per cent increase on the previous year.

But its shares fell sharply as concerns about growth, inflation and interest rates threaten to hurt future prospects.

And Tesco said there was “no doubt” of further pressure on costs, but insisted it would do everything it could not to increase prices.

Both retailers have been hit by the Chancellor’s raid on National Insurance contributions, which will cost M&S ​​£60m a year and add £250m to Tesco’s tax bill.

The pair were among a number of companies that offered a mixed set of updates on Christmas trading yesterday. Markets, already in a feverish mood amid a sell-off in the bond market, were unimpressed, sending stocks tumbling across the beleaguered sector.

Retailers fear Rachel Reeves’ tax take will hurt the sector and that appeared to dampen even the bright figures for M&S and Tesco.

Marks’ sales were boosted by food stalls: 1.2 fresh turkeys were sold every second in the run-up to Christmas and 600,000 packs of pigs in blankets were devoured.

Clothing, including velvet dresses and tuxedos, also flew off the shelves as the group cemented its return to style.

Celebrity partnerships with Sienna Miller and Hannah Waddingham have helped M&S shake off its previously dowdy reputation.

But boss Stuart Machin said his recovery was “a marathon, not a sprint”.

The group warned: “The outlook for economic growth, inflation and interest rates is uncertain and the business faces higher costs due to well-documented tax increases.”

The shares fell more than 8.4 per cent, or 31.5 pence, to 345.3 pence.

Chris Beckett, head of equity research at investment manager Quilter Cheviot, said: “Overall it was a good Christmas, but management remains cautious in its outlook and the stock has been downgraded accordingly.”

Meanwhile, Tesco hailed its “biggest ever Christmas” as it said it was on track to make annual profits of £2.9bn.

Sales in the United Kingdom rose 4.1 percent during the six weeks to January 4 compared with the same period a year earlier, Britain’s biggest supermarket said.

And consumers have been “shifting from all corners”, including discounters Aldi and Lidl, boss Ken Murphy said.

But he added: “There is no doubt that the budget has impacted the cost of doing business, particularly in retail.” That said, we have a good track record in managing costs.’

Murphy admitted that the higher costs would have to be passed on.

“What I won’t say is that there will be no inflation, but we will do everything possible to minimize the impact,” he said. Tesco shares fell 0.5 per cent, or 2p, to 368p.

AJ Bell’s head of financial analysis, Danni Hewson, said: “Never mind that Brits were happily devouring the best pigs in blankets, what really counts is how consumers feel in the cold light of January.”

“You have to take into account the reality of a buoyant economy, looming rise in labor costs, rising bond yields and instability in the pound.”

• Shares in discounter B&M fell 8.5 per cent, or 29.7p, to 318.9p after sales fell. It generated £1.4bn in revenue between October and December in the UK, up 2.8 per cent on the same period a year earlier. But, in a comparable comparison, which excludes sales from its new stores, it marked a drop of 2.8 percent.