Next warns weaker pound could prolong cost of living pressures

Next has warned that the weaker pound could prolong pressure on the cost of living in the wake of the mini-budget.

The retailer said most apparel and homeware factories price their goods in dollars, meaning costs are likely to continue to rise over the next year.

The company also lowered its profit and sales targets for 2022 after customers spent less at its stores in August.

The high street giant now expects profits of around £840m this year, down from a previous forecast of £860m.

A statement on Thursday said August was “below our expectations” and that pressure on shoppers at the checkout is likely to “increase” in the coming months leading up to the important holiday season.

Next said that prices for its autumn and winter ranges have already increased by an average of 8% this year compared to 2021 as it has had to pass on additional costs to customers.

It also expects similar rates of inflation — the rate at which prices rise or fall — for its spring and summer ranges next year. UK prices were 9.9% higher in August than 12 months ago.

However, the group said some costs, such as freight and logistics, have come down in recent months.

Next, widely regarded as one of its most consistent high-street performers, said it experienced a stronger-than-expected first half, with full-price sales up 12.4% year-on-year.

Pre-tax profit rose 16% to £401m.

Next, a chain of around 500 stores in the UK suggested weaker sales in August could be due to the heatwave following the summer sales, more customers heading abroad after travel restrictions were eased and concerns about higher prices.

Lord Wolfson, Tory peer and boss of Next, said the retailer was hoping to see “benefits from recent government measures” such as the energy price guarantee, although it was “too early to say” if they could boost consumer spending.

“There are so many variables at play – energy, freight, employment, taxes, economic migration, exchange rates… Now more than ever, it’s impossible to predict the future based on the past,” he said.

In its statement, Next also said that weakness in the pound – which hit an all-time low against the dollar earlier this week – could last into 2023 and “would help boost selling prices, particularly in the second half of the year”.

Next warned that prices could get even worse in the second half of next year.