Associated British Foods has warned that consumer confidence remains fragile, in spite of its better than expected profits and a surge in sales at its Primark discount fashion chain.

The group also revealed that slightly fewer than 400 jobs were at risk in the UK, as it revamped its Twinings tea business, moving processing to Poland and China.

George Weston, chief executive, said the group was cautious about prospects for the UK consumer.

He said: “With taxes going up and government spending going down, and unemployment still going up, it seems the most likely thing is consumer spending remains subdued.”

Mr Weston expected it to be a “long slog to recovery”, adding: “I can’t see there is going to be a great splurge at Christmas.”

At Primark, which is expanding in Europe, like-for-like sales rose 7 per cent in the year to September 12, with overall sales up 20 per cent. Mr Weston said current trading continued to go well but the recent warm weather had affected demand for coats and sweaters. Primark’s operating profit margin fell from 12.1 per cent to 10.9 per cent because of an increase in overheads from a new distribution centre and the drop in sterling.

Primark helped ABF lift sales from £8.24bn to £9.26bn. But group pre-tax profit fell from £527m to £495m, reflecting the closure of a factory as part of the merger of the North American edible oils business with Archer Daniels Midland, and higher financing costs.

The group benefited, however, from a “real turning point” in its sugar business.

Nevertheless, ABF, which employs 32,500 in the UK, is in consultations about closing a factory in Newcastle, employing 260 people, while another 130 jobs in Andover, Hampshire, are under threat. Twinings’ processing for export markets will move to a factory in China, which will be doubled in size, and to a new factory in Poland.

Earnings per share were flat at 45.5p (45.2p), but excluding exceptional items, they rose 5 per cent to 57.7p, ahead of analysts’ expectations.

The shares fell 12½p to 820½p.

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