Retail giant Next has defied expectations for the crucial Christmas trading season, posting stronger-than-forecast sales but cautioning that a spike in wage costs will lead to higher prices this year.

Full-price sales at the clothing and homeware chain rose 6 per cent in the nine weeks to 28 December, beating City forecasts of 4.5 per cent. This growth – fuelled largely by online and overseas performance – led Next to raise its annual pre-tax profit guidance by £5 million to £1.01 billion.

Despite celebrating its tenth consecutive profit upgrade in the face of cost-of-living pressures, Next struck a note of caution, citing a £67 million increase in wage costs for the year to January 2026. The full-year impact will reach £73 million, driven by a planned hike to employer national insurance contributions and the minimum wage from April.

In response, Next told investors it would raise prices by 1 per cent to help offset these additional costs, warning of a potential drag on UK economic growth as higher employer taxes filter through to prices and employment decisions.

Full-price sales for the coming financial year are initially projected to rise by 3.5 per cent, with pre-tax profits of almost £1.05 billion for the year to January 2026. Next, led by chief executive Lord Wolfson, remains one of the first major listed retailers to report on its Christmas trading performance. Tesco and Marks & Spencer are set to publish updates soon, while J Sainsbury will follow on Friday.

Despite the seemingly upbeat holiday trading, the British Retail Consortium (BRC) has cautioned that overall sector performance has been tempered by mild weather and more cautious consumer spending. BRC figures show modest sales growth in the run-up to Christmas and project a tough start to 2025, with consumer confidence dipping and shop price inflation forecast at 1.8 per cent.

Next will report full-year results for the 12 months ending 25 January on Thursday, 27 March.

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Next warns of 1% price increase as budget wage bill soars by £67m