TOY firm Hornby warned it was facing a tough Christmas after disappointing sales of Olympics merchandise left it nursing a half-year loss.

The company made £2.5m on sales of London 2012 goods such as model taxis and buses, but margins were weaker than expected. After provisions to cover unsold stock, it slid to a £541,000 loss in the six months to September.

The firm admitted it was battling against “significant short-term challenges”. UK sales rose by 3% for the half year, but plunged by 15% with Olympics sales stripped out.