Retail is true bellwether
If YOU want to know what’s happening to the British economy, there’s no better place to see than taking a peep into Next’s headquarters in Enderby, Leicestershire. It’s here the number crunchers collect the sales figures for the UK’s biggest clothing retailer from across 700 stores – 200 of them in Europe – and a booming online business which sells everything from its own fashion to homeware to Victoria’s Secret lingerie.
Not only has Next turned out to be one Britain’s best-run companies, but its trading patterns are proving to be an exceptionally accurate bellwether of how confident shoppers are about what happens next.
And with spiking energy prices, fears of higher interest rates and a fall in living standards, the outlook doesn’t look great.
Indeed, the message from Next’s latest third-quarter update confirms what many experts have been predicting: that after several months of pent-up post-pandemic demand, trading has dulled over the last few weeks.
While Next reported a healthy 17pc jump in full-price sales in the third quarter to the end of October, sales slowed to 14pc over the last five weeks. Next chief executive Lord Wolfson is being typically careful, warning that the effects of pent-up demand are likely to ‘diminish’ and that getting stock because of warehousing labour shortages is still causing problems.
What was interesting to see is how online sales have leapt again – they are up nearly 50pc on the year – while bricks and mortar sales were down 28pc.
Lockdown habits are proving hard to break. Yet Wolfson remains cautious about the run-up to Christmas.
He expects sales will be down but still 10pc higher, which is not too bad, all things considered.
The full-year forecast remains the same at an adjusted pre-tax profit of £800m, its highest level since 2016.
But you never know with Wolfson. It’s true he has a habit of keeping expectations low so as not to disappoint: in September the group upped profit forecasts for the fourth time this year, the sixth in two years. But that’s not likely at this stage.
If they are smart, members of the Bank of England’s Monetary Policy Committee will have looked closely at Next’s figures before deciding today whether or not to raise interest rates.
While Governor Andrew Bailey and economist Huw Pill have been fuelling fears of a hike coming sooner rather than later, a rise is by no means a slam-dunk.
You could say their warnings have done the work for them, prompting mortgage lenders to start putting up rates.
Yet the nine members of the committee are pretty evenly split, with two particularly dove-ish members – Professor Silvana Tenreyro and Dr Catherine Mann – arguing recently that rate rises now would damage an already fragile economy.
Tenreyro warns that the Bank is powerless to control inflation by hiking rates because the latest jumps in energy prices are global in nature and triggered by supply chain disruptions.
In fact, raising rates by any significant amount could be dangerous, tipping the economy into recession.
With consumer confidence at its lowest level since february, it is no surprise that the lockdown savings people had stored away are staying under lock and key. If I were the betting sort, a 6-3 vote against is the most likely outcome.
And if they do go up, they are unlikely to go beyond 0.25pc.
Get the vote out…
If THE controversial £530m takeover of insurer LV, by Bain Capital, goes ahead, the 1m-plus eligible members will be offered £100 each. Yes, £100.
Although the one-off payment would cost LV £111m, it’s a derisory amount. If LV’s bosses thought £100 would be enough of a sweetener for members to accept the offer, then they must be even more desperate than they appear.
They are already asking the courts to change its articles of association so they can get the takeover through more easily.
At the moment, 75pc of at least 50pc of members have to approve the takeover. But LV wants to change the articles so that 75pc of a smaller number of members is necessary, which is an outrage.
There is only one thing to be done now. Those who are against the takeover must take a leaf out of Dominic Cummings’ playbook and get everybody out to vote.
They have until December 10 to drum up a Vote No-style campaign. Cummings might even have some spare time to help out.