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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 increases introduced in the Budget starts to affect the overall economy.
The high street bellwether expects annual pre-tax profit to rise by £5m to just over £1bn in the year to January, following strong full-price sales over the festive period.
But he also said that “tax increases for employers and their potential impact on prices and employment” would start to feed through to UK sales growth, referring to Chancellor Rachel Reeves' changes to National Insurance contributions.
It expects UK full retail prices to rise 1.4 per cent in the next financial year, up from 2.5 per cent in the 12 months to 28 December.
However, retailer it still forecasts profit growth of 3.6 percent for the year to January 2026.
The FTSE 100 company, which has 458 stores in the UK and also sells online, estimates that Reeves' move to increase employer contributions to National Insurance, increase the National Living Wage and general wage inflation will cost £67m.
She said the government's decision to lower the income threshold at which businesses start paying NI contributions from £9,000 to £5,000 was one of the most significant costs, totaling £20m.
Next said it would try to offset these “unusually high” costs through operational efficiencies and a 1 per cent price increase, “which is unwelcome but still lower than general UK inflation”.
Richard Chamberlain, retail analyst at RBC Capital Markets, said he believed Next would benefit from “further growth in UK real wages, although it remains somewhat sensitive to the outlook for consumer borrowing costs”.
Next's full-price sales rose 6 per cent in the nine weeks to December 28, or 5.7 per cent when it strips out the impact of end-of-season sales, which were timed differently to the previous year. The figures beat Next's previous estimate of a 3.5 per cent increase over the previous year.
