Government cuts will harm high street spending, says Next chief

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The chief executive of Next has warned that government action to reduce the public-sector deficit could hit consumer spending for the next three years. Nevertheless, rising online sales in the first quarter led the chain to boast that annual profits would be at the top end of City expectations.

Simon Wolfson said that while uncertainty about the result of today's election had not yet affected people's spending habits, "real changes to their personal income statement", such as tax increase, would. "We will see an impact over the next two to three years from the Government having to reduce the deficit," he said.

Mr Wolfson added: "The best scenario is that the Government cuts the deficit through efficiency savings. The worst scenario is they make no efficiency savings and raise taxes."

Over the 13 weeks to 1 May, Next's total sales rose by 4.1 per cent, which was ahead of expectations. The uplift was driven by a 7.2 per cent rise in its "Directory" internet and catalogue sales. The engine room was online sales, which were boosted by new customers and by existing ones increasing their average transaction value and shopping more often, notably on home-related products.

"Our fastest growing area across the business is in home," Mr Wolfson said. "The [product] mix does not vary greatly from retail to online but, on the whole, people tend to buy sofas from shops rather than online because they want to sit on them."

The retailer currently has nine Next Home stores but plans to open 12 new outlets during this financial year.

Next has upgraded its forecasts for sales at its multi-channel Directory business to between 2 and 5 per cent for the first half of the year. This is despite warning that it would launch its autumn Directory a week late this year, which will "suppress" first-half sales by 2 per cent.

Mr Wolfson said: "Directory is performing a little bit better than we said [in March]; retail is in line."

Next said its internal pre-tax profit forecasts would be towards the top end of City forecasts of between £525m and £565m this year.

Like-for-like sales, including direct, rose by 2.2 per cent. But they fell by 0.8 per cent at stores open for more than a year, excluding sales from the Next Directory and the internet.

The retailer said its pre-tax profits had risen 18 per cent to £505m for the year to the end of January.