Next boss warns of bleak winter for High St: Tory peer Lord Wolfson says ‘the jury is out’ on whether Truss’s economic plan will work
The boss of Next said the jury was out on the Government’s economic plans – as the retailer warned of the impact of cost of living pressures to come.
Lord Wolfson – a Tory peer – said ministers were ‘making all the right noises’ about the supply-side reforms needed to kick-start the British economy.
But he warned ‘the jury’s out’ on whether Liz Truss and Kwasi Kwarteng’s strategy would work. Next’s chief executive was speaking as it cut its full-year profit outlook, with sales expected to fall in coming months.
Positive signs: Lord Wolfson – a Tory peer – said ministers were ‘making all the right noises’ about the supply side reforms needed to kick start the British economy
The share price fell 12.2 per cent, or 650p, to 4674p as it reported a 16pc rise in pre-tax profit to £401million for the six months to July.
But the chain, which trades from about 500 stores and online, expects sales in the second half to fall by 1.5 per cent.
It said August trading was worse than expected and September could be boosted by the Government’s energy bill help but that ‘cost of living pressures are set to rise in coming months’.
Wolfson predicted that the pain caused by the surge in energy prices would be followed by the impact of sterling’s slide versus the dollar making imports more expensive, even though it has in recent days fought back from record lows.
‘It looks like we may be set to have two cost of living crises: this year, a supply-side led squeeze, next year a currency-led price hike as devaluation takes effect,’ he said.
Wolfson said it was clear the borrowing needed to fund Chancellor Kwarteng’s £45billion tax cuts and an energy bill freeze that experts say could cost £100billion would put downward pressure on the pound.
‘However, whether or not they have spent too much will depend on the ambition and depth of their supply-side reforms,’ he added, saying he wanted changes to rules on planning, tariffs, economic migration and energy markets to speed up growth.
‘If the Government is as aggressive in tackling the supply-side issues then there is a chance that growth will pay for the stimulus.
‘If those measures aren’t enough or they’re too late then it will be hard to justify the cost.’ Next said its costs were up 8 per cent for the spring and summer of next year.
But Wolfson told the Daily Mail: ‘What we’re really concerned about is next autumn and winter because we haven’t yet bought all of our currency for that season. If the currency remains where it is, that is when the inflation in the cost price of our goods will be at its most acute.’
Wolfson stressed however that cost price rises will not be translated entirely into shop prices.
He said Next would not hold back on investing in technology and products, even though he sees the impact of squeezed supplies and currency weakness extending well into 2024.
He said: ‘We’re not going to take our foot off the gas, however long this crisis goes on for – and it will probably be six to 18 months – at some point it will be over and what will matter then is what shape is the business in.
‘If we stop investing and cut investment in things we think are good investments it’ll be a huge mistake. Whenever you’re in the middle of a crisis, it looks like it’s never going to end.
‘They always do end.’
Wolfson said UK consumers had built up savings over the last couple of years, and the coming recession would be unlike those in the 1980s or 1990s, where vast numbers of jobs were lost.
With vacancies still high, he said: ‘It looks like we will have a full employment recession.’
H&M profits collapse
Retail giant H&M has blamed a collapse in profits on its exit from Russia and inflation.
The Swedish fashion and homewares chain posted profits of £56million for the third quarter, down from £500million in the same period last year.
Exiting Russia explains half of the fall. Higher raw materials and freight prices, supply delays and a stronger US dollar resulting in cost increases for buying American goods also played a part.
H&M paused all sales in Russia soon after the war in Ukraine started, selling the last of its stock there in July.
It had about 6,000 employees in Russia and the closure cost it £170million, it revealed.