What’s Next for Britain? Simon Wolfson’s prediction isn’t cheery

theguardian.com:

You know things are bad when the share price of Next, a company that has made an art of underpromising and overdelivering over the years, falls 13% in a day, even in a weak stock market. The odd part, though, was that half-year profits were solid and the cut in the full-year forecast represented the lightest of trims – from £860m to £840m.

So why the bout of nerves? The answer was that the chief executive, Simon Wolfson, walked investors through the mathematics of the pound’s devaluation and how it will prolong inflation in shops. It wasn’t cheery: he predicted a second cost of living crisis.

The fact that a lower pound increases prices is not remotely surprising, of course, especially in a UK retail industry that buys most of its garments from foreign factories that price their goods in dollars. Next itself reckons prices in its shops are up 8% this autumn and winter thanks to past falls in the pound.

It’s the prospect of what comes in 2023 that spooked the market. A 26% devaluation against the dollar in a year can be mitigated: factories’ actual production costs aren’t priced in dollars; commodity and shipping costs have probably peaked; and Next can manage its UK costs.

But Wolfson added it all up and concluded: “Even with these mitigations in place, the scale of sterling’s recent devaluation means that, for us at least, the greatest pressure on our selling prices looks like it will come in autumn and winter of 2023.”

Precision in the projections fizzled out at that point, though. There are too many uncertainties. Investors should probably have worked it out themselves, but clearly hadn’t. Next is a FTSE 100 retail bellwether. It does not breed confidence for the rest of the sector’s reporting season.

Chalk it up as another