The chief executive of the Kingsmill owner Associated British Foods (ABF) has warned Rachel Reeves not to give consumer sentiment “another whack” in her upcoming budget, despite signalling that food price rises had peaked and will now start to ease.
George Weston, the chief executive of the ABF conglomerate which also owns the fashion chain Primark and produces sugar and cooking ingredients, said recent food price inflation had been driven by employers passing on increases to labour costs announced in Reeves’ first budget as chancellor last year.
He said most retailers had now passed these costs on and “food inflation will be gradually easing from now” as the cost of commodities was “pretty benign”.
Grocery inflation stood at 5% in August, according to the latest data from analysts Worldpanel, contributing to wider inflation, which rose to 3.8% in July.
He added that Primark had not raised clothing prices in a year as it had been able to offset higher labour costs with more technology, such as self-service tills and lower freight and cotton prices.
Weston said given the higher food prices, Primark’s shoppers had kept a tighter rein on spending than more affluent consumers.
“We had to work very hard to earn our shoppers’ money, as we are not in an easy consumer environment,” he said, with sales in the UK and Ireland rising by 1% over the six months to 13 September, helped by new store openings.
But shares in ABF slid more than 13% on Wednesday as analysts said trading at Primark’s mainland Europe outlets had been worse than hoped. The company also warned that sugar profits would be below expectations. ABF’s sugar business, which includes the closing Vivergo ethanol plant, is also likely to make a £40m loss, much deeper than feared.
The company said group sales are expected to have fallen by 2% at established Primark stores in the six months to 13 September, with sales flat at established UK stores and sales falls in Germany, France and Italy.
Weston blamed “political turmoil” in France, which was the worst performing country, and consumer uncertainty elsewhere in Europe amid the Ukraine war and inflation.
Weston said Primark was “trading very strongly” as a seasonal change in the weather had led to demand for warmer clothing and it had sharpened up its fashion ranges, particularly on denim.
He said that Primark continued to gain market share in a flat UK market despite heavy competition from Shein, the Chinese-founded online fashion seller.
Many retailers fear Reeves will impose further tax increases on businesses in her 26 November budget. Weston said: “I hope consumer sentiment doesn’t take another great whack in November … anything that reduces returns on investment or increases the costs of employing people [could affect sentiment]”.
Weston said he would like to see Reeves’ November budget “closing that big loophole around de minimis” – a tax break that allows Shein and others to import items worth less than £135 direct to consumers without paying customs duty.
“I don’t like to be faced with competition that has an unfair advantage which could be costing the Treasury maybe £100m a year,” he said. “A lot of money is being left on the table unnecessarily.”
He also called on the chancellor to revise plans to increase business rates for large high street stores.
