Britons have been consoling themselves with cakes and hot soup during May and June’s miserable weather, Premier Foods, the UK’s largest food supplier, said yesterday as it gave warning that bread prices would have to rise for a second time this year.

The price of a basic loaf hit £1 in February and an Australian drought, poor 2006 harvests, increased demand from India and China as well as America’s drive for biofuels have increased the price of wheat globally.

Sources said that Premier, which owns the Hovis brand, was likely to seek a price rise of about 7p a loaf, similar to the 6p to 10p rise being sought by its rival Warburtons.

Food companies’ margins are being squeezed by a 53 per cent rise in the price of wheat to £130 a tonne since March last year, while the price of edible oils and other grains have also risen.

Premier’s shares fell 4.7 per cent to 279¾p as the company said that the increase in wheat prices would affect profit margins and rising interest rates would increase the cost of servicing its £1.8 billion debt. However, it was confident of meeting full-year profits expectations. Overall revenues for the first half will be higher, although like-for-like sales are set to fall after Premier quit a number of low-margin, own-label contracts.

The company said that it was on track to make cost savings of £113 million from its recent acquisitions of Mr Kipling from RHM for £1.2 billion and the UK unit of Campbell Soup for £460 million.

It also said that it had halted the 4 per cent decline in sales at Campbell’s before last year’s deal, but added that trading profits would be lower than recorded last year as it had increased marketing spend on the brands. Graham Jones, an analyst at Panmure Gordon, said that forecasts would be cut by between 3 per cent and 4 per cent because of higher interest costs.

Unlike many companies, Premier said that it had benefited from the cold and rainy weather in May and June, offsetting disappointing sales during a hot April. Sales of Mr Kipling cakes and biscuits were up nearly 10 per cent in the past three months against the same period a year ago, while Bisto gravy granules and Paxo stuffing were also up on last year.

The British Retail Consortium announced surprisingly strong retail sales growth in June, despite four interest-rate rises and weeks of rain. Sales rose 5.1 per cent in June, against the same month a year before, while like-for-like sales, which strip out the effect of store openings, rose 3 per cent.

Strong sales of furnishings and other goods for the home and better-than-expected clothing sales helped to offset a slowdown at supermarkets and a dismal time for DIY stores and garden centres.

Helen Dickinson, head of retail at KPMG, which helps to compile the BRC’s monthly retail sales survey, said: “I was surprised by the June figures. The feeling was that it was not pleasant out there.”

However, she said that clothing sales were being driven by increased discounting, which could mean that retailers’ profit margins would be affected. Ms Dickinson added: “These results mask a complete reversal of the trend prevalent for many months. Food and drink was not the driving force behind them.’’

The BRC said that consumer confidence had been dented by rises in interest rates but shoppers were taking advantage of heavy discounting in some sectors of the market in the expectation that there would be further rate rises.

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