High street giant Next Plc believes the Government could stimulate the weakened economy by cutting poor value projects such as HS2 and relaxing migration controls.
The business said high employment – compared the previous economic downturns – would also help the country fight its way through a looming recession, as would the solid state of household savings.
With the new Prime Minister and Chancellor stumbling from one economic crisis to the next and with inflation and interest rates rocketing, the fashion chain said sales were behind expectations last month but had picked up – possibly thanks to Government support for household energy bills.
After a good start to 2022, Next has cut its pre-tax profit estimates for the full year by £20 million to £840 million.
In results for the first half of 2022, the Leicestershire-headquartered business said full price sales and pre-tax profits were up more than 20 per cent on the same period, pre-Covid in 2019 – and it was doing what it could to maintain that momentum.
But shares in the business were down more than 8 per cent today at around £48.67.
In a statement signed off by chief executive Simon Wolfson, the business said: “Sales during August were below our expectations and, despite improving sales in September, we think it is sensible to moderate our expectations for sales and profit in the second half.
“It is important to stress that, with so many variables at play, predicting near-term sales trends is unusually difficult. All the more so with recent Government stimulus measures yet to take full effect.
“We may have been too pessimistic; we may have not been pessimistic enough. Either way, success through adversity will not depend on our ability to foresee the future.
“It will depend on how well we adapt the business; to recognise and face up to whatever challenges materialise; and seize the opportunities that will inevitably arise. So that, when the storm has passed, Next emerges a stronger and better business than it is today. To that end, our priorities are clear.”
He added: “We have always been clear that, even at the best of times, our internal forecasts represent an informed best guess.
“In keeping with J.K. Galbraith’s maxim, we understand that ultimately we do not know for sure – no one does. There are so many variables at play – energy, freight, employment, tax, economic migration, exchange rates, etc – that today, more than ever, it is not possible to predict the future on the basis of the past.
“It is over 40 years since the UK last experienced an inflationary shock on the scale we are witnessing today; and the UK economy of the 1970s – with its reliance on highly subsidised and geographically concentrated heavy industry – was incomparably different to the economy of today.”
The business said the fall in value of the pound looked set to prolong inflation, though Government help with the cost of living crisis could help smooth the shock of high energy prices.
It said only measures which increase the supply of goods, energy, services and skills will “cure the underlying malaise”.
The business said: "Fortunately, there are a small number of powerful measures that could make all the difference. These include the radical overhaul of our planning system, the intelligent relaxation of controls on economic migration, energy market reforms, the liberalisation of trade tariffs and more.
"Government might also review its own capital expenditure. If they can identify and cut capital projects that deliver little value, they will reduce borrowing and release desperately needed goods and services back into the economy (without prejudging it, HS2 would be top of our list for review)."
It said although its average sales prices were up around 8 per cent, it was seeing encouraging signs of that abating at the factory gate and, in some cases, production costs coming down.
However the business said: “The majority of clothing and homeware factories price their goods in dollars.
“Over the last year, the pound has significantly devalued against the dollar, so inflation in our cost prices looks set to continue throughout next year, indeed it may get worse in the second half of 2023.”
Lord Wolfson was a supporter of Brexit which saw the pound drop 16 per cent against the dollar in 2016. Today a pound is worth around $1.08.
After hedging its currency needs for the first half of 2023, Next said it expected a similar 8 per cent rise in its sales prices.
But it said a weaker pound did not automatically translate into higher selling price. More supply and many producer nations also suffering devaluation against the dollar, could help, it said.
Likewise the dollar price of many commodities and shipping costs could fall further, and the business would continue to do what it could to limit the increase in its costs at home.
It said: “Perhaps most importantly of all, our product and sourcing teams will have to work harder than ever to find new, ethical and reliable sources of supply to ensure we are getting the best possible value, without compromising design or quality.
“But, even with these mitigations in place, the scale of sterling’s recent devaluation means that, for us at least, the greatest pressure on our selling prices looks like it will come in autumn and winter of 2023.”
It added: “Before this document sinks to levels of depression only usually seen in newspapers, it is worth pointing out that there are some features of our economy, such as employment opportunities and accumulated savings that bring some comfort.”
