Retail giant Next has cautioned that the UK faces years of “anaemic growth”, hampered by the Government’s jobs tax hike and rising unemployment. Chief executive Lord Simon Wolfson said falling shopper confidence, driven by a faltering jobs market after April’s increase in national insurance contributions (NICs), will drag down UK sales.
The warning came as Next reported a 13.8% rise in underlying pre-tax profits to £515 million for the six months to the end of July, with total full-price sales up 10.9%. The company maintained its recently upgraded full-year guidance for group sales to rise by 7.5% and profits to increase by 9.3% to £1.11 billion. However, it expects UK sales growth to pull back sharply to 1.9% in the second half, against 7.6% in the first six months.
Lord Wolfson told the PA news agency: “The medium to long-term outlook for the UK economy does not look favourable. To be clear, we do not believe the UK economy is approaching a cliff edge. At best we expect anaemic growth.” He cautioned against further tax rises similar to the NICs increase, saying such measures are “particularly bad for the economy, because they inhibit economic growth”.
The group said the hike in NICs and the minimum wage were leading to a steep drop in vacancies, making it harder for people to find work, especially young workers. Within Next, job vacancies are down 35%, with steeper falls in stores, while applications have jumped 76% and numbers per vacancy are 2.7 times higher than two years ago. The company plans to increase prices by 1% over the second half to offset rising costs.
Next’s first-half performance was boosted by better-than-expected summer weather and disruption at rival Marks & Spencer after a major cyberattack. With those factors absent and the economy weakening, sales growth is expected to slow sharply, with store sales forecast to fall by 0.6% in the second half and online growth more than halving to 3.6%.
The international business is expected to help Next weather the storm, with full-year overseas sales forecast to soar by 23.8%. Lord Wolfson said the company would expand in growing markets. Chris Beauchamp, chief market analyst at IG Group, noted that Next’s weak forecast was a “City tradition” but added: “Today’s warning is a bit different, pointing towards low growth and tough times ahead.”
