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Business News

Next CEO Lord Wolfson challenges George Osborne on rally claims


The head of one of Britain’s biggest retailers voiced doubt over Chancellor George Osborne’s recovery claims today, warning of a a “credit-led” consumer recovery and a house price bubble.

Next chief executive Lord Wolfson, a Conservative peer and married to one of the Chancellor’s key aides, said the economy was “not out of the woods” despite stronger recent news.

The FTSE 100 boss warned that consumer spending would not drive a “strong or long-lasting” recovery with inflation set to stretch ahead of wages for the next year, and made a thinly veiled attack on the Coalition’s Help to Buy Scheme introduced in the Budget. In a speech earlier this week the Chancellor claimed vindication for his strategy with the improving economic news and said proponents of more stimulus “had lost the argument”.

But Wolfson struck a particularly downbeat note, warning: “We are not out of the woods. Things have stopped getting worse but they are not necessarily starting getting better. The consumer credit squeeze is over but that in itself is not enough to create an economy. Although credit is flowing back into the economy, real earnings are not increasing. Any recovery built primarily on growth in credit will not be a strong or long-term recovery.”

He added: “It is good that housing transactions are returning to normal. The worry is that the mortgage market (improvement) results in increased prices rather than more building. I think house price inflation is as bad as any other type of inflation unless it results in more houses being built. Policy should be directed more at getting houses built rather than pushing up house prices.”

In Next’s results the company warned that the loosening of the mortgage market alongside Government stimulus measures “look likely to result in an unhelpful house price bubble”, potentially resulting in a “significant drag on the economy if and when interest rates begin to move up”. It added: “The limited consumer recovery has been entirely credit led. We believe that talk of a full-blown recovery is premature. We expect the consumer environment to remain subdued until such time as real earnings begin to grow and that looks like it will take at least a year.”

The retailer reported an 8% rise in pre-tax profits to £271.8 million for the year to July 27 and held its guidance for the full year. Next, which has 541 stores, saw sales soar in July’s heatwave but Wolfson admitted August’s sales were hit by a shortage of summer clothes.

Wolfson’s warnings over house prices came amid fresh evidence from the Council of Mortgage Lenders of buyers piling into the market.

Mortgage lending jumped 12% in July to £16.7 billion, up from £14.9 billion in June and 29% ahead of a year earlier. The number of buy-to-let loans jumped 12% over the month.