Comment: Next right to be wary of recovery claims

It is testament to the skill with which Next has navigated almost five years of financial turmoil that the opinion of chief executive Lord Wolfson is almost as highly anticipated as the traditional quantitative measures as a bellwether for the economic recovery.

This week, Next reported a sales jump of 2.3% in its first half and revised up full-year profit forecasts. The figures come only days after Government ministers pointed to a 0.6% rise in gross domestic product for the three months to June as evidence the UK economy is finally on the mend.

But those looking to the Next boss for affirmation that we are in the spring of a sustained recovery will have been left disappointed. The Tory peer played down the significance of the latest GDP numbers.

He not only argued that increasing consumer volatility was making it harder to extrapolate long-term trends, but warned Next does not anticipate any significant change to the trading environment for more than a year.

As Lord Wolfson’s remarks suggest, retailers will continue to remain sceptical until the numbers become far more robust. Especially considering the economy remains more than 3% smaller than before the Lehman Brothers collapse plunged the financial crisis to new depths.

Most important of all, however, is that real incomes have continued to decline, with average wages growing less quickly than inflation. Until the squeeze on household incomes eases, retailers should be wary of pinning their hopes on an accelerated recovery.