The boss of one of Britain’s biggest high street retailers has signalled that clothing prices could rise next year as the impact of Brexit boosts inflation, amid warnings that food prices could also climb.
Lord Wolfson, the chief executive of Next and a prominent Vote Leave supporter, spoke against the backdrop of a collapse in the value of the pound that will increase sourcing costs for retailers who import goods in dollars.
Wolfson said many retailers will have currency hedges in place, which offer short-term insurance against swings in sterling, but that will only delay the impact on high street prices for the time being.
“Most retailers will have covered forward the balance of this year so [the fall in sterling] will not be reflected in prices this year,” said Wolfson. “Next has covered 60% of its requirement of dollars and euros for spring/summer next year and I imagine the rest of the industry will be in a similar position,” he added. “So the volatility in currency markets will have no effect until the spring, maybe the summer of next year.”
However, analysts have warned that food price rises could hit shelves more swiftly. Bruno Monteyne, a retail analyst at Bernstein Research, said the cost of food for retailers could rise by up to 3% – a sharp turnaround from recent years in which shoppers have been enjoying annual price falls in the supermarkets.
Only 15% of the fresh fruit sold in the UK is grown here, and 55% of vegetables, with most of the rest coming from the EU. Nearly 40% of pork sold in the UK also comes from overseas. If sterling remains weak or falls further, prices will inevitably rise, said Monteyne.
Analysts were already worried about the outlook for the retail sector as consumer confidence was fragile even before the Brexit vote. Store chiefs are battling competition from online retailers while staff costs are rising due to the national living wage.
Wolfson said there was “no logical reason” for the Brexit vote to hit consumer spending as nothing would happen for two years. “There has been no change in the underlying economy,” he said. “As far as Next is concerned our forecasts have already factored in a consumer downturn and other retailers may also have a degree of pessimism in their budgets.”
In March, the Conservative peer, regarded by many as a sage on the economy, predicted the toughest trading conditions since the financial crisis on the back of weakening economic data and evidence Britons were choosing to spend spare cash on eating out and holidays rather than a new wardrobe.
Wolfson said it was a shame the Brexit debate had been dominated by immigration. “A large number of people voted leave for this reason but it’s not about that, it’s about being a sovereign nation that can build positive links with the rest of the world as well as Europe,” he said, adding: “A lot of remainers wanted to remain for the right reasons and a lot of leavers wanted to leave for the right reasons.”
The key now, said Wolfson, was the economic path charted by David Cameron’s successor. “What we do having made the decision to leave is more important than the decision itself,” he said.
“In the long term I think there is potential for a huge benefit to the economy but that will depend on the choices made by whoever leads the next government,” said Wolfson. “If they take an outward-looking, free-trading approach to the rest of the world, that would make a difference to sentiment and investment. The opposite would be to pull up the drawbridge and protect our way to economic prosperity, which I think would be catastrophic.”
