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High street retailer Next has warned that its growth rate in the UK will slow this year as the impact of tax rises introduced in the Budget starts to affect the overall economy.
The high street bellwether expects annual profit before tax to edge up by £5mn to just over £1bn for the year to January after strong full-price sales during the festive period.
But it also said that “employer tax increases, and their potential impact on prices and employment” would begin to filter through into its UK sales growth, referring to chancellor Rachel Reeves’ changes to national insurance contributions.
It expects UK full price sales growth of 1.4 per cent in the next financial year, down from 2.5 per cent in the 12 months to December 28.
However, the retailer still forecast profit growth of 3.6 per cent for the year to January 2026.
The FTSE 100 company, which has 458 stores in the UK and also sells online, estimated it would take a £67mn hit from Reeves’ move to increase employer national insurance contributions, the rise in the national living wage and general wage inflation.
It said the government’s decision to lower the earnings threshold at which businesses start to pay NI contributions from £9,000 to £5,000 was one of the most significant costs, totalling £20mn.
Next said it would try to offset these “unusually high” costs through operational efficiencies and by increasing prices by 1 per cent, “which is unwelcome, but still lower than UK general inflation”.
Richard Chamberlain, a retail analyst at RBC Capital Markets, said he believed that Next would benefit from “further real wage growth in the UK albeit it will remain somewhat sensitive to the outlook for the cost of borrowing for the consumer”.
Next’s full-price sales rose 6 per cent in the nine weeks to December 28, or 5.7 per cent when stripping out the impact of its end-of-season sale being timed differently to the previous year. The figures exceeded Next’s previous guidance of a 3.5 per cent increase on the previous year.
