David Prosser: Gloomy Next may be right – for once

Outlook We have become accustomed to worrying warnings from Next about the outlook for consumer spending, which its chief executive Simon Wolfson subsequently takes great joy in confounding with a seemingly unexpected outperformance from the retailer. Mr Wolfson's latest such warning, however, is not so easily dismissed – and not just because Carpetright, which occupies a different part of the high street, issued an almost identical caution yesterday.

The resilience of retail spending has puzzled many economists for several months now. The threat of tax rises and the public-sector spending cuts that are to come should have been sufficient to dent consumer confidence and to put a brake on sales. Likewise, while the housing market, in the form of mortgage approvals, typically moves in tandem with retail sales, the two seem to have become decoupled in recent months, with the latter having defied a downturn in the former.

Sadly, the possible explanations for these better-than-expected retail sales all look to be temporary. The World Cup and the warm weather of June and July were one-off boosts, while the second-quarter data, in any case, looks artificially strong compared with a very weak first three months of the year. There is some evidence that higher retail spending is being offset by lower consumer spending elsewhere. The sharp fall in the savings ratio this year may also indicate that consumers have been raiding their piggy banks to continue spending, which cannot last forever.

We may now be at the turning point. All of the economic data of the past week or so suggests the pace of the recovery has slowed over the past month and, specifically on retail, the latest footfall figures look very patchy.

Capital Economics reckons that the combined effect of tax rises, benefit cuts and public-sector job losses will be to knock 3 per cent off household income growth next year. Then there is the January VAT increase to contend with. For once, Mr Wolfson may not be crying wolf.