British shoppers defied rampant inflation and economic gloom over the holiday season, driving up sales at clothing seller Next and budget retailer B&M European Value Retail. Whether that spending will carry into the new year, however, remains in doubt.

Next raised its annual profit forecast on Thursday (Jan 5) after Christmas sales gained, helped by a December cold snap that brought customers into stores in search of winter clothing. B&M and baker Greggs also reported recent revenue growth. Next week, results from a range of retailers – from Tesco and Marks & Spencer Group (M&S) to Asos – will show how widely consumers spread the cheer.

Analysts expect a 23 per cent decline in M&S’ adjusted pretax earnings in the year to March, according to data compiled by Bloomberg. Asos will also give a business update on Jan 12, as analysts predict a decline of more than 50 per cent in the online fashion retailer’s annual earnings for its current fiscal year.

UK consumers have to contend with higher prices, soaring energy bills and transport strikes, so it was encouraging that they chose to keep spending at Next stores over Christmas. But the coming months will get harder with credit card bills coming due and mortgage rates rising while the Bank of England does not forecast inflation to peak until later in the year.

Expectations for UK retailers are so low that even though Next forecast an 8 per cent decline in pretax profit till January 2024, the shares rose as much as 9.3 per cent. Next sees inflation peaking in spring-summer this year and receding in autumn, providing some guidance for when shoppers may finally see prices start to stabilise. 

“Let’s hope inflation does come down,” Greggs chief executive officer Roisin Currie said on a media call on Thursday. “I don’t think we’ll move into a deflationary environment though.”

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Next’s update gave some positive news in a sector that has been dismal for months as consumers pull back on non-essential spending. Online furniture brand Made.com and fashion chains Joules and M&Co entered insolvency in recent months. Some retailers are having to turn to alternative lenders for support, with household and garden retailer Wilko securing a credit facility from Hilco Capital and Superdry getting a loan from Bantry Bay Capital.

UK pharmacy chain Boots said on Thursday that early indications were for a very strong Christmas period with sales growth of about 15 per cent. Gifts, beauty and perfumes sold well along with cold medications.

Tesco and J Sainsbury will also reveal next week how well their Christmas sales held up against discount rivals Aldi and Lidl, which are growing market share as shoppers seek to save money on groceries. Kantar data out this week showed that Tesco and Sainsbury’s sales grew less than the German retailers in the 12 weeks before Christmas. Bloomberg