Associated British Foods warns of weak Primark sales amid UK tax fears and European turmoil

Associated British Foods said it expected weakness in Primark sales as consumers in the UK and parts of continental Europe tightened spending, warning that uncertainty over tax changes and political turmoil were weighing on demand.

George Weston, chief executive of ABF, told investors the group was seeing "very negative consumer sentiment" and expressed concern that the timing and content of the November 26 Budget would sap confidence ahead of the crucial Christmas shopping period. He said shoppers across "large swathes of continental Europe" faced "very squeezed" disposable incomes and that political instability in France and Spain had hit consumer confidence.

ABF said Primark's like-for-like sales were expected to have fallen 2% in the six months to Sept. 13, though sales in the UK and Ireland were up about 1% on the back of warm weather and strong womenswear ranges. The owner of Twinings and Ovaltine warned of "consumer caution" as economic headwinds and policy uncertainty hampered footfall.

The stock market reacted sharply: ABF shares plunged 13.2% on the trading update. By contrast, Inditex — the Spanish owner of Zara, Pull & Bear and Bershka — reported a stronger start to its autumn season, saying seasonal ranges had been "well received by customers" and that sales rose 9% between Aug. 1 and Sept. 8 compared with the same period a year earlier. Inditex's shares rose about 6.5%.

Inditex said group sales grew 1.6% to £15.9 billion in the six months to July 31, and chief executive Oscar Garcia Maceiras described the results as a "solid performance, with satisfactory sales in a complex market environment, keeping strong levels of profitability." ABF did not give a full-year forecast in its update but highlighted the risks posed by deteriorating consumer sentiment.

Weston cautioned that unemployment appeared to be rising, which could further depress consumer spending. He also criticised proposed reforms to business rates put forward by Chancellor Rachel Reeves, saying they risked penalising the large stores that act as "anchors" for high streets and draw in footfall for smaller retailers. Retail groups have warned the measures could force thousands of shops to pay higher rates.

Retailers fear the business rates changes could push about 4,000 shops into higher tax bands, industry representatives have said, and analysts warned the mere prospect of tax increases could reduce discretionary spending as households brace for rising costs.

Analysts said part of the contrast between ABF and Inditex reflected differences in product positioning and pricing. Russ Mould, investment director at AJ Bell, said Inditex's offerings are higher priced than Primark's and therefore need to "sparkle" to persuade cautious consumers, but the company had been more upbeat about current trading than ABF.

ABF highlighted specific product successes in the UK, citing a best-selling pair of £22 palazzo jeans, but said wider European markets remained challenging. The company said it was monitoring the trading environment closely as it moved into the key autumn and winter selling periods.

The trading update underscores broader strains across European retail as policymakers weigh tax changes and as political developments in France and Spain affect consumer confidence. Companies with exposure to value-focused segments, like Primark, may be most sensitive to shifts in discretionary spending, while fashion groups with higher price points have so far signalled greater resilience.

Investors will be watching the November Budget and subsequent policy announcements for further detail on business rates and support measures, and retailers will be assessing the fallout on footfall and sales in the run-up to the holiday season.