Now even Primark hit by squeeze on spending

More evidence of the squeeze on household budgets emerged yesterday after the owner of discount clothing retailer Primark revealed a "noticeable" slowdown in consumer demand.

Associated British Foods said the chain's half-year sales rose 3 per cent on a like-for-like basis - half the level achieved during its previous financial year, according to a pre-close update ahead of next month's interim results.

AB Foods said that, while Primark traded well during Christmas despite the snow chaos, the mood had changed among shoppers since the start of the year.

It is also battling against an ongoing squeeze on profit margins since the new year VAT rise and the impact of soaring global cotton prices.

The update comes after a long period when Primark has weathered the recession and consumer downturn with forecast-beating sales growth.

Consumers are reining in their spending as they come under pressure from the VAT hike, as well as soaring petrol prices.

John Bason, finance director at AB Foods, said it is a trend he expects to see mirrored among other retailers this year. "Even for people who don't feel they will lose their jobs, they will feel they are being squeezed," he noted. "It won't just be Primark, but we'll see it for a number of retailers."

Primark has been AB Foods' star performer in recent years as it has ridden the boom in demand for budget clothing on the high street.

The wider group - including household brands such as Silver Spoon sugar, Kingsmill bread and Twinings tea - said it will see interim underlying earnings ahead of last year as its other business units saw a better first half for trading.