Next warns of UK growth slowing down after budget tax increase

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Next has warned that sales and profit growth will slow this year as tax increases in the UK Budget hit one of the country’s biggest retailers and the wider economy.

The FTSE 100 company on Tuesday laid out the impact from the October Budget, when chancellor Rachel Reeves increased the amount employers contribute to national insurance and also lowered the income threshold at which they start pay.

The measures, along with increases to the national living wage and general wage inflation, will cost £67m in the current financial year, Next said, as it warned of the likely impact for the broader economy.

According to Next, which has 458 stores in the UK, “Employer tax increases and their potential impact on prices and employment” will start to impact sales growth of the company.

It expects full-price UK sales growth of 1.4% in the next financial year, down from 2.5% in the 12 months to 28 December.

The retailer expects profit growth of 3.6% in the year to January 2026, down from an estimate of 10% for the 12 months to January 2025.

Despite Next’s caution going into the year ahead, the retailer’s sales over the crucial Christmas period exceeded the group’s forecasts.

Next’s full-price sales rose 6% in the nine weeks to December 28, or 5.7% when removing the impact of end-of-season sales timed differently from the previous year.

The figures exceed Next’s previous guidance for a 3.5% rise on the previous year and would push the chain’s pre-tax profits to just over £1bn in the year to January.

Shares of Next rose 2.7% in early trading.

Next said the prime minister’s move to lower the income threshold at which businesses start contributing to NI from £9,000 to £5,000 was one of the most significant costs, totaling £20m.

It said it would try to offset these “unusually high” costs through operational efficiency and by increasing prices by 1%, “which is unwelcome but still below general inflation in the UK”. .

In a survey of 5,000 businesses published this week by the British Chambers of Commerce, around 55% of companies said they were planning to price increase in the next three months.

Richard Chamberlain, retail analyst at RBC Capital Markets, said he believes Next will benefit from “further real wage growth in the UK, although this will remain somewhat sensitive to the outlook for borrowing costs of consumers”.