UK households face a tough run-up to Christmas, Sainsbury's warns the government

Sainsbury's has warned of a 'pretty challenging' market in the run-up to Christmas, saying households are 'finding it tough' and food producers face rising costs.

Simon Roberts, chief executive of the UK's second biggest supermarket, called on the government not to 'further aggravate' pressure on business costs in the coming budget. It was important, he said, that the government did not repeat previous budgets by raising business rates and employers' national insurance contributions. 'That's been really hard,' he said.

After Sainsbury's and other industry leaders met government ministers last week, Roberts said he believed 'this government is really listening to business', especially on helping to create more jobs for young people.

On food inflation, Roberts said it was not 'anything like' some of the high levels forecast earlier in the year. But he suggested that high energy and fertiliser costs could push up food prices next year.

He also said that in a more unsettled global environment the UK needed to 'improve food resilience and grow and produce more at home'. With the climate crisis expected to bring more hot, dry summers like this year's, he called for bigger tax breaks supporting investment in farm technology, including irrigation and reservoirs.

Shares in Sainsbury's slid 3.7% on Thursday as the retailer revealed slower-than-expected sales growth of 2.6% in the six months to 12 September, with growth almost halving to 1.9% in the second quarter from 3% in the first.

Strong online grocery sales — up 9% — and a 6% rise in sales of the retailer's premium own-label Taste the Difference range helped support that growth.

Roberts said sales had slowed as shoppers kept a tight rein on the number of items they bought amid a 'focus on the cost of living', and reined in spending on clothing and big-ticket items such as furniture at Argos. Sales at the catalogue shop were down 1.8%, and Sainsbury's general merchandise and clothing sales were down 3.4% in the half.

The growth figures were also dented by comparison with last summer, when Sainsbury's and other retailers received a boost to trade while Marks & Spencer and the Co-op were affected by cyber-attacks.

Pre-tax losses for the half year widened to £63m from £14m a year earlier. Underlying profit, however, rose 5.2% to £366m excluding the Argos catalogue business, which is being sold; the deal is expected to complete in February, with the businesses totally separated by 2029.

Sainsbury's now expects annual underlying profit of at least £1.02bn, slightly more than the £975m previously outlined. Charles Allen, a senior retail analyst at Bloomberg Intelligence, said the figures suggested the company was not expecting profits to grow in the second half against a tougher competitive backdrop, as inflation returns and rivals prioritise sales growth.

Roberts refused to comment on speculation about buying a rival, amid reports that the group had entered and ended talks to buy Morrisons earlier this year. The group did say it planned to open 10 supermarkets and 25 convenience stores by March — which some analysts said reduced the logic of seeking a merger with a rival. The budget and the Christmas season are now the two big tests ahead for Sainsbury's.