John Lewis reports big loss and warns of no-deal hit as Brexit dents consumer mood

Low confidence also affects sales at Morrisons, and Co-op says crashing out of EU threatens supply chain

John Lewis has announced that it slipped into the red during the first half of its financial year (PA)

Falling sales and surging costs plunged John Lewis into a £25.9m loss in the first half of its financial year – and the company warned that Brexit will continue to hold back consumers.

If Britain leaves the EU without a deal, the impact will be even larger and the retailer will not be able to soften the blow, despite preparations such as stockpiling, John Lewis said on Thursday.

“Brexit continues to weigh on consumer sentiment at a crucial time for the sector as we enter the peak trading period,” said Sir Charlie Mayfield, chairman of the John Lewis Partnership, noting that the company tends to make the majority of its profits in the second half of the year.

“Should the UK leave the EU without a deal, we expect the effect to be significant and it will not be possible to mitigate that impact.”

Sir Charlie said the retailer is most worried about the potential impact on the supply of fresh food and on consumer confidence. “Ultimately, that could have a knock-on impact on profits. That could be significant,” he noted.

The loss for the six months ending on 27 July, before tax and one-off items, contrasts with a profit of £800,000 a year earlier.

John Lewis said it was pushed into the red by its department stores where sales fell 2.3 per cent, with subdued consumer confidence depressing demand for home and electrical goods in particular. Meanwhile, costs at the stores, including pay and IT, rose.

Waitrose fared better, with sales only slightly lower.

Brexit has also affected sales at Morrisons, the supermarket chain said in its half-year earnings report on Thursday.

“Customer behaviour continued to be impacted by the uncertainties around the prolonged Brexit process, and consumer confidence continued to be low,” the company said.

And Co-op warned of an increased risk of disruption to its supply chain if Britain leaves the EU without an agreement. “We will do all we can to protect our customers and members from this impact,” it added.

However, earlier this month the British Retail Consortium said it is impossible to stockpile fresh foods and rejected a claim by Michael Gove, who is in charge of no-deal Brexit planning, that there would be no shortages of such products.

An official assessment of the impact of a no-deal Brexit, kept secret until late on Wednesday, shows that Mr Gove’s statement contradicted the government’s own forecasts.

The Operation Yellowhammer paper says the choice of food products will reduce and prices will rise, adding that “certain types of fresh food supply will decrease”.

Due to the timing of Brexit, the UK harvest season will be over and the supply chain will be under “increased pressure” due to preparations for Christmas, while panic-buying may make the situation worse, the document states.

Co-op also said it is particularly worried about the impact of a no-deal Brexit on British farmers whose produce it has championed over the last few years. Another potential consequence will be a shortage of labour, it added.

Additional reporting by PA