Shares in Greggs (GRG.L) slumped nearly 10% on Thursday morning, after the UK bakery chain warned of higher costs this year, as well as posting a slowdown in sales growth.

Greggs said in a trading update, released on Thursday, that company-managed shop like-for-like sales had grown 2.5% in the fourth quarter, which was down from the 5% increase it reported in the third quarter. This was also down from the 9.4% growth the business posted for the same period last year.

The food-on-the-go retailer said its latest fourth quarter figures reflected the "more subdued high street footfall".

However, Greggs said demand was high for its line of seasonal products in the fourth quarter, including its festive bake, the vegan festive bake and its new festive flatbread.

For the full 2024 financial year, Greggs said company-managed shop like-for-like sales had risen by 5.5%, which was well below the 13.7% growth it reported last year.

While Greggs posted record total sales of more than £2bn for the year, which was up 11% on 2023, this rate of growth was still slower than the nearly 20% increase it reported last year.

Greggs CEO Roisin Currie noted that "lower consumer confidence continues to impact high street footfall and expenditure" but believed that the company was well positioned to "meet the headwinds we expect to see in the year ahead".

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The bakery chain said it planned to open between 140 and 150 shops this year, which would include 50 relocations.

In its outlook for 2025, Greggs warned that "employment costs will result in further overall cost inflation, although wage increases should provide support to consumers".

"Greggs has demonstrated its ability to mitigate cost inflation in recent years whilst retaining its value leadership, and we are confident we can continue to do so," the company added.

The bakery chain was one of more than 70 businesses to sign an open letter to chancellor Rachel Reeves in November, which warned that policy changes announced in the autumn budget would make "job losses inevitable, and higher prices a certainty".

Businesses have warned of the impact of higher costs from increases in the national minimum wage and employer national insurance contributions, announced in the budget.

Greggs raised prices on some of its products by between 5p and 10p at the end of December, a spokesperson for the company told Yahoo Finance UK.

On Thursday, shares in other UK retailers also fell as downbeat sentiment over the economy weighed on the sector.