Next boss warns of second cost of living crisis in 2023 as pound slumps

Next’s chief executive has warned the UK could be heading for a second cost of living crisis next year as the slump in the value of the pound drives further price rises.

The fashion and homewares retailer on Thursday cut sales and profit expectations for the year after a disappointing August and on fears that inflationary pressures would squeeze shoppers’ spare cash.

Simon Wolfson, the chief executive of Next, said the retailer now expected annual sales to fall by 1.5%, rather than rise by 1%, and had slashed £20m from its profit forecast to £840m. Shares fell nearly 9% in early trading, making Next the biggest faller on the FTSE 100 on Thursday morning.

Next said the August slowdown could be down to waning consumer confidence as rising energy and other costs dampened discretionary spending, but added that it was also likely to have been influenced by more people taking holidays abroad and a heatwave that dented demand for autumn clothing.

Wolfson said inflation could be worse in the second half of next year than it was now because of the currency crisis: “The devaluation of the pound looks set to prolong inflation, even once factory gate prices ease. 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 the factory gate price of goods was stabilising and in some cases coming down while freight costs were also beginning to ease. But he added that the currency devaluation would stoke inflation in the UK because most clothing and homeware factories priced their goods in dollars.

In the spring and summer of next year, Wolfson said the price of clothing and homewares was likely to increase by about 8%, a similar level of inflation to this autumn and winter, but pressure was building on prices for next winter.

Sales for the second half of the group’s financial year are expected to fall 2% after rising by 12.3% to almost £2.4bn in the first six months, helped by a 63% surge in high street sales after last year’s lockdowns. Pre-tax profits in the first half rose 15.5% to £400m, as swing back into the black by the high street stores offset a fall in profits from the group’s online business.

Wolfson, a Tory peer, took a swipe at the government’s “borrow and spend” attempt to help with the cost of living crisis, saying: “As we are already seeing, when a government borrows too much their currency will devalue, and stoke inflation next year.”

He called for alternative measures including “radical overhaul of our planning system, the intelligent relaxation of controls on economic migration, energy market reforms and the liberalisation of trade tariffs”, adding: “It is only measures which increase the supply of goods, energy, services and skills that will cure the underlying malaise.”