Britons splurge on food, cut back on gifts as retailers warn of tough 2026

Britons prioritised festive food but thought twice about spending on clothing and gifts over Christmas, trading updates from Tesco TSCO.L, Marks & Spencer MKS.L and Primark ABF.L showed on Thursday.

December's solid food sales offered some relief for major retailers, but lingering caution and stubborn inflation cloud the outlook for 2026.

Tesco, Britain's biggest food retailer, reported a 3.2% rise in underlying UK sales for the six-week festive period, calling it a "strong" Christmas. That was below summer growth of 4.6% and slightly under analyst forecasts. Its shares fell 5%.

'COUNTING EVERY PENNY'

Marks & Spencer's underlying food sales jumped 5.6% in the Christmas quarter, but clothing, home and beauty dropped 2.9%, hit by weak demand and the fallout from a cyber hack last year.

That dovetailed with Primark owner Associated British Foods ABF.L, which said Britain's clothing market was "difficult" over Christmas. Its shares slumped 11% after it also warned of falling sales in continental Europe.

Greggs GRG.L, Britain's biggest fast-food chain, flagged subdued consumer confidence and guided to flat profit this year.

Tesco CEO Ken Murphy said consumer confidence was mixed, with some shoppers "counting every penny".

"I think we've seen over Christmas that, despite comments to the contrary, people enjoyed Christmas ... they traded up," he told reporters.

"I can't legislate for what 2026 holds for anybody."

Consumer confidence remains fragile as unemployment rises. Official data last month showed Britain's jobless rate at its highest since early 2021.

On Tuesday, fashion retailer Next NXT.L reported better-than-expected Christmas sales but warned growth would slow in 2026. CEO Simon Wolfson said he feared employment pressures would weigh on spending as the year progresses.

-James Davey, Paul Sandle and Yadarisa Shabong/Reuters