Next's increased profits could spell more inflation pain for mortgage holders

Next’s trading update suggests the Bank of England could be confronted by another inflationary headache at its interest rate meeting on Thursday (22 June).

The results, which cover April and the first half of May, seem to show us that consumer spending remains strong despite cost of living pressures (we cannot say this for sure because Next hasn’t shared its volume sales figures). The clothing brand upgraded its profit forecasts, with the Financial Times reporting that wage inflation and better weather have encouraged more purchases.

“We do not think it is a coincidence that sales stepped forward so markedly at a time of year when many organisations make their annual pay awards,” Next said. “Ongoing inflation will slowly erode the positive effect of annual pay increases."

The company said pre-tax profits will reach £835 million, up from previous forecasts of £795m. And while this is good news for Next, it may not be for the Bank of England and homeowners across the country. The Bank of England has made increasing wages public enemy number one in its anti-inflation fight.

Clothes are included in the Office for National Statistics' (ONS) core inflation measure. This yardstick shows us how embedded - or sticky - inflation is proving to be and is watched closely by the Bank of England rate-setters. While headline inflation fell from 10.1% to 8.7% in April, core inflation actually climbed to a 30-year high of 6.8%.

If Next’s sales uplift is a sign of what’s to come in May’s inflation statistics (which will be released tomorrow morning), it could well spell more pain for mortgage payers.