SAINSBURY has warned that non-food sales will be hit by rising inflation and weak wage growth, while underlining that it expects food prices to rise amid sterling weakness following the Brexit vote.

The group said that after more than two years of deflation, food and fuel prices started to rise towards the end of its financial year, driven by the devaluation of the pound and commodity price increases.

“While this has benefited food retail market growth, general merchandise and clothing sales growth have been impacted by reduced consumer confidence and a marked slowdown in real pay growth,” said the group as it revealed an 8.2 per cent fall in pre-tax profits to £503 million.

Sainsbury acknowledged that the UK economy had performed better than expected since the Brexit vote in June 2016, but “the picture is changing now”.

In 2017/18, Sainsbury said it expected cost inflation in the two to three per cent range. This is in line with the 2.6 per cent food inflation rate reported by Kantar Worldpanel yesterday.

The overall grocery market grew 3.7 per cent for the 12 weeks to April 23, its fastest rate since September 2013.

Kantar’s Fraser McKevitt said he expected prices to rise further but noted the current rate was still below the average level between 2010 and 2014.

For the year to March 11, like-for-like sales at Sainsbury fell 0.6 per cent, with total revenue up 12.7 per cent to £29.1 billion – mainly as a result of the Argos acquisition.

Mike Coupe, Sainsbury chief executive, said: “This has been a pivotal year and we have made significant progress delivering and accelerating our strategy.”

The £1.1bn deal to acquire Argos, which divided opinion in the City, seems to be paying off for Sainsbury.

One analyst summed up the performance of Argos, which contributed £77m profit to the group, by noting “what began as a bolt-on has turned into a lifeboat”.

Mr Coupe said he was “pleased with the progress” made since the acquisition.

There are now 59 Argos stores within Sainsbury’s supermarkets, and the group is accelerating the roll-out of 250 Argos Digital stores in its supermarkets.

Like-for-like sales at integrated Argos stores which have been open for more than one year are up between 20 and 30 per cent, while grocery sales also benefit from a two per cent up lift in such stores.

John Ibbotson, director of the retail consultancy Retail Vision, commented: “What began as a bolt-on has turned into a lifeboat. Incorporating the catalogue brand initially swallowed time and resources, but it has begun paying dividends that flatter these otherwise insipid results.”

Supermarket sales dipped by nearly two per cent, but convenience and online food sales grew by six and eight per cent respectively.

Mr Coupe said: “Our food business remains resilient in a challenging market and we continue to innovate in quality and to invest in price”.

Sainsbury operates 35 supermarkets and 64 convenience stores in Scotland. A new convenience store will open on Monday on Glasgow’s Gordon Street.