1. ITV Report

Tesco boss: 'Brexit is squeezing household budgets'

  • Video report by ITV News consumer editor Chris Choi

Shoppers are cutting back on holidays and cars as household budgets are squeezed in the wake of Brexit, according to the boss of Tesco.

The supermarket giant's CEO said families were having to adjust to rising costs of inflation, brought about by uncertainty in the market.

And Dave Lewis told ITV News he could not rule out Tesco increasing the price of goods as inflation grows, but insisted it would do everything possible to "mitigate" that cost.

Mr Lewis said the retailer was looking for "certainty" ahead of Brexit negotiations to ease the process.

"As budgets get squeezed, things which start to be affected first are those discretionary things like holidays, like cars," he told ITV News.

"In our case, eating out tends to be something that people tend to do slightly less frequently and we see more eating at home."

The chief added that families were adjusting household expenditure in different ways, but said this was less to do with cutting back on essentials like food.

Operating profits are up for Tesco by 30%. Credit: PA

His comments come as Tesco reported a 30% rise in full-year operating profits to £1.28 billion for the year 2016/17.

The supermarket's operating profits jumped from £985 million the previous year to breach a billion pounds.

Group sales increased by 4.3% to £49.9 billion, while like-for-like sales rose by 0.9%.

The latter represents Tesco's first full-year sales increase for seven years, as its recovery under Mr Lewis gains momentum.

Tesco's profits took a hit because of a £129 million fine. Credit: PA

Mr Lewis said Tesco had outperformed its aims and expectations.

"We are ahead of where we expected to be at this stage, having made good progress on all six of the strategic drivers we shared in October," he said.

"We are confident that we can build on this strong performance in the year ahead, making further progress towards our medium-term ambitions."

Despite the supermarket's improved performance, pre-tax profits were down 39% to £145 million.

This fall reflected a £235 million charge imposed late last month over an accounting scandal.

Tesco Stores Limited agreed to pay a £129 million fine, as well as £85 million in compensation to investors, after it inflated profits by £263 million in a trading update in 2014.

Group sales were also up for Tesco to £49.9 billion. Credit: PA

Meanwhile, Tesco's shareholder value is set to appreciate with the supermarket's proposed £3.7 billion merger with wholesaler Booker.

Mr Lewis said: "Our proposed merger with Booker will bring together two complementary businesses, driving additional value for shareholders by realising substantial synergies and enabling us to access the faster growing 'out of home' food market."

The move, however, has been criticised by a number of investors.

Both Schroders and Artisan, which own 9% of Tesco, have called for the move to be put off over fears the price being paid is too high.

Mr Lewis told ITV News the merger would offer greater choice for shoppers, but not result in an increase of stores.

The tie-up will face scrutiny from the Competition and Markets Authority, which would force Tesco to offload branches if it deems the deal harms competition.