Next warns of £21bn squeeze on consumers

The chief executive of Next has warned that household budgets face a £21bn hit from soaring inflation this year, which is likely to lead to a further deterioration in consumer spending and leave retailers feeling like "walking up the down escalator".

Despite Next delivering record profits last year, Lord Wolfson of Aspley Guise said that in the wake of public-sector job cuts, global inflation and limited growth in consumer credit, retailers were having to cope with a "new economic landscape". He added: "Retail in the UK is going to be very different over the next few years."

Worse than expected retail sales for February from the Office for National Statistics, which reported a 0.8 per cent fall in sales volumes in February, only darkened the storm clouds gathering over the high street.

Lord Wolfson said: "The year ahead will be yet another challenging year for retailers and things are likely to get worse before they get better. Retailers will feel like walking up the down escalator – we will have to work hard to stand still."

But action by Next to mitigate cost pressures helped it to deliver a 9 per cent rise in pre-tax profits to £551m for the year to 29 January, on revenues up by 1 per cent to £3.45bn.

Lord Wolfson said Next was already seeing weaker trade in parts of Scotland, Northern Ireland, Wales and the North of England, as public-sector job cuts hit. But he said that, overall, an inflation rate of 4.4 per cent was having a bigger impact on consumer spending.

Based on ONS data, Next said that in January households saw transport costs rise 7.7 per cent, food and drink up 6.3 per cent, and mortgages/rent up 2.1 per cent. Taken together, over 2011, such inflation would leave households paying out an extra £21bn.