Next has warned that further tax increases in next month’s Budget could weaken UK economic growth, as the retailer lowered its domestic sales outlook amid rising living costs, higher borrowing expenses and a cooling labour market.
Lord Simon Wolfson, Next’s chief executive, said households were already facing pressure from higher fuel and energy costs and warned that additional taxation risked further constraining consumer demand.
“These worries will only be compounded if they are accompanied by tax increases.”
Wolfson said the UK’s tax burden was already unusually high and argued that further increases could create a damaging feedback loop for the public finances.
“The tax burden is at its highest level for over 60 years and seems to us to be at the point where further increases only risk stifling growth – and lower growth is likely to only worsen Government finances – a vicious circle.
“In our view, the best outcome for UK growth would be a credible plan to get Government spending under control – eliminating the fear of higher taxes – alongside supply side measures to boost growth.”
Speaking to the Press Association, Wolfson said the government had “very little room for manoeuvre” given the condition of the public finances, limiting its ability to introduce further measures aimed at supporting household incomes.
He also warned that higher energy and fuel prices would weigh on spending, although he stopped short of forecasting a sharp downturn.
“We’re not talking about a collapse in consumer spending, but the cost of living pressures from energy that are coming through will inevitably put downward pressure on that,” he told PA.
Next reduced its forecast for UK sales growth during the second half of its financial year from 2.8 per cent to 2 per cent, citing the potential impact of weaker consumer spending.
The retailer increased UK prices by between 1 and 2 per cent during the first half and expects price rises to remain at similar levels through the rest of the year and into early 2027.
Wolfson said lower tariffs on imports from India had helped increase competition between clothing suppliers and offset some of the impact of higher fuel, energy and labour costs.
“We’re not seeing significant price inflation on the goods we’re buying for spring and summer next year,” he said.
The cautious UK outlook contrasted with a stronger first-half performance. Next reported UK full-price sales growth of 3.6 per cent in the six months to July, with online sales rising 7.4 per cent while store sales fell 1.7 per cent.
International online sales increased 23.9 per cent, contributing to underlying pre-tax profit growth of 10.5 per cent to £569mn. Statutory pre-tax profit rose 11.2 per cent to £566mn.
Next raised its full-year profit forecast to £1.23bn, an 8 per cent increase, while expecting sales growth of 6.7 per cent.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: “In the UK, hotter-than-expected weather and more effective marketing saw customers logging in to refresh their summer wardrobes online, helping offset a small decline in-store.
“But international markets were the biggest contributor to top-line growth, fuelled by pent-up demand in the Middle East and Northern Europe.”
He added: “Next is set to lap a tough comparable period in the second half, and concerns about rising inflation and weaker employment in the UK have seen sales guidance here wound back a touch.
“We view this outlook as overly cautious given that Next’s sales are skewed towards middle-class and middle-aged consumers, who are likely to remain relatively resilient even if conditions deteriorate over the rest of the year.”
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