Next caution underlines UK consumer pressures

A better-than-expected increase in UK retail sales for February has not altered concern that British consumer spending is on an alarming downward trajectory and that domestic demand — a major driver of the UK economy since last year’s Brexit vote — is faltering.

New figures, published yesterday, showed a 1.4% monthly rise in UK retail spend in February. While this was 1% ahead of expectations, underlying figures showed that sales volumes have fallen at their fastest rate in seven years in the past three months.

Unless growth in March is unprecedentedly strong, retail sales looked set to drag on the overall UK economy in the first quarter of 2017. HSBC economist Liz Martins doubted the strength in February alone would continue, with UK consumer price inflation hitting its highest in more than three years last month at 2.3%.

Major clothing retailer Next underlined the shift in consumer outlook, saying it was “extremely cautious” about its prospects, partly due to higher inflation, after reporting its first fall in profits since 2009.

Next’s pre-tax profits for the 12 months to the end of January fell 3.8% to £790.2m. That was in line with analyst expectations and further relief came with the company keeping with its previous forecast of this year’s profits falling to between £680m and £780m, instead of suggesting a worsening slide.

That and a bullish suggestion that it can tough out a challenging market by improving supplier partnerships and updating product ranges helped boost Next’s share price by over 9% yesterday — its biggest gain since June — and also helped lift rival Marks and Spencer by nearly 5%.

Another high street retailer showed good results yesterday. Fashion retailer Ted Baker reported a 4.4% rise in annual pre-tax profit, as sales surged in Britain and the rest of Europe by more than 10%.

The company, which trades from 490 stores and concessions globally, said group pre-tax profit rose to £61.3m, with retail sales in its UK and Europe business rising 10.7% to £279.5m. Total group revenues, including wholesale sales, were up 16.4% to £531m for the 12 months to the end of January.


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