Main UK retailers Tesco and Marks and Spencer reported robust Christmas buying and selling on Thursday however restricted revenue upgrades amid uncertainty in regards to the extent to which rising prices might be handed on to clients.

Tesco stated full-year working revenue from retail operations could be “barely above” its beforehand indicated £2.5bn-£2.6bn vary, a proportionately smaller improve than rival grocery store group J Sainsbury. Tesco shares fell 1.4 per cent in morning commerce.

Excessive avenue chain M&S stated full-year revenue could be “at the least” £500m, a barely extra assured projection than its November forecast of “round” £500m. Buyers reacted by marking its shares down 5 per cent.

Each corporations sounded a cautious notice over the impression of inflation. Retailers are dealing with rising prices for uncooked supplies, freight, wages and vitality simply as family incomes are set to come back beneath intense strain from rising taxes and vitality prices.

Tesco’s chief monetary officer Imran Nawaz stated the group usually assumed annual price inflation of about 2-3 per cent however that was at present operating nearer to five per cent.

Chief govt Ken Murphy and his M&S counterpart Steve Rowe stated they have been dedicated to mitigating the impression of price inflation on retailer costs by working with suppliers and lowering different prices.

Each additionally careworn the significance of high quality, product innovation and worth — outlined by Rowe as “satisfaction minus worth” — versus simply worth.

However supermarkets are eager to keep away from a repeat of the strategic blunders they made within the aftermath of the monetary disaster, when a concentrate on defending income quite than decreasing costs allowed Aldi and Lidl to grab market share.

Tesco and rival Sainsbury’s have since worth matched key objects to Aldi, stopping a big worth hole opening up. The pledge “actually establishes within the thoughts of the shopper that for these important basket objects they won’t be crushed on worth in the event that they store at Tesco”, stated Murphy.

M&S too has labored arduous on pricing lately, specializing in decrease on a regular basis costs on strains quite than complicated promotions.

“It’s a tough stability,” stated Eoin Tonge, M&S’s finance chief, including that price discount programmes and direct relationships with suppliers would assist handle a number of the impression. Nevertheless it was “inevitable” that some could be handed by way of to customers.

Murphy stated Tesco’s costs rose roughly 1 per cent on common within the 19 weeks to January 8 however wouldn’t be drawn on how a lot additional they may improve within the yr forward.

Andrew Porteous, retail analyst at HSBC, stated that up to now grocers have been preserving worth rises to a minimal. “We are likely to turn into extra involved when meals inflation exceeds wage progress . . . however this doesn’t really feel like a big threat in the mean time.”

Price pressures have been additionally evident, although much less pressing, in clothes. “Afterward within the yr we are going to see the headwinds of inflation in uncooked supplies and cargo however we’ll work arduous to drive volumes to restrict how a lot of that’s handed on,” stated Rowe.

Subsequent stated lately that it anticipated costs on its 2022 autumn and winter strains to be about 6 per cent increased than the identical objects final yr.

Regardless of the headwinds, each Tesco and M&S reported strong Christmas buying and selling and elevated their market shares in meals.

Tesco’s UK gross sales within the six weeks to January 8 rose 0.2 per cent on final yr whereas income at Tesco Financial institution will likely be increased than forecast due to lower-than-expected ranges of dangerous debt.

M&S’s complete UK gross sales rose 18.6 per cent in contrast with the Covid-disrupted interval final yr and by 8.6 per cent on pre-pandemic ranges. Its meals enterprise continued its latest outperformance, with gross sales rising 12 per cent on pre-pandemic ranges.

Clothes and residential gross sales have been up 3.2 per cent versus two years in the past, their second quarter of progress, helped by a extra targeted product providing, keener pricing and better on-line gross sales.