Tesco and M&S sound alarm over rising costs as retail giants hit by Budget after booming Christmas trading

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

M&S reported sales of £4.06 billion for the three months to December 28, up 5.6 percent from a year earlier.

But stocks fell sharply as concerns about growth, inflation and interest rates threatened to dampen future prospects.

And Tesco said there was ‘no doubt’ there would be greater pressure on costs, but stressed it would do its best not to increase prices.

Both retailers have been battered 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 string of companies to provide a mixed set of updates on Christmas trading yesterday. Markets, already at a fever pitch during the bond market sell-off, were unimpressed, causing stocks in the beleaguered sector to fall.

Retailers fear Rachel Reeves’ tax grab will hurt the sector and even appeared to spoil the sparkling figures from M&S and Tesco.

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

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

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

But boss Stuart Machin said the turnaround was a ‘marathon and not a sprint’.

The group warned: ‘The outlook for economic growth, inflation and interest rates is uncertain and businesses face higher costs as a result of well-documented tax increases.’

Shares fell by more than 8.4 percent, or 31.5p, to 345.3p.

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 shares have been devalued accordingly.’

Meanwhile, Tesco hailed its ‘biggest Christmas ever’ as it said it was on course for annual profits of £2.9 billion.

Sales in Britain rose 4.1 percent in the six weeks to January 4 compared to the same period the year before, Britain’s largest supermarket said.

And consumers have been ‘switching from all corners’, including from discounters Aldi and Lidl, says boss Ken Murphy.

But he added: ‘There is no doubt that the Budget has had an impact on the cost of doing business, especially for the retail sector. That said, we have a good track record of cost control.”

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

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

Danni Hewson, head of financial analysis at AJ Bell, said: ‘It doesn’t matter that the British were happily gobbling up the best pigs in blankets, what matters is how consumers are feeling in the cold light of January.

‘The reality of a swollen economy, the looming rise in labor costs, rising bond yields and a shaky pound all need to be taken into account.’

• Shares in discount store B&M fell 8.5 percent, or 29.7p, to 318.9p after sales fell. It generated £1.4 billion in revenue in Britain between October and December – 2.8 percent more than the same period a year ago. But compared to the comparable situation, where turnover from the new stores is excluded, there was a decrease of 2.8 percent.