Next chief executive Simon Wolfson was his usual cautious self last week, revealing to the City that the fashion retailer would be “sticking to the knitting”.

His approach pleased analysts, and one even believes that Next is among the best-managed companies in the sector.

Wolfson is right to be cautious. Among the long list of global economic problems, sterling’s depreciation against the dollar and the euro is flagged as “an enormous challenge” because the majority of goods are sourced in these currencies. Some of the currency impact will be absorbed by suppliers, but Wolfson explained prices for its autumn/winter range will go up across the board between 3 and 5 per cent.

For Next – which has chosen to continue trading at full price at all times except its usual structured Sales – its operating margins will fall to 10 per cent from 13.1 per cent as it seeks to absorb some of the cost increases. Wolfson, with his safe pair of hands, has factored in this increased cost.

For other retailers, the picture is less clear. The surge in promotional activity that started pre-Christmas turned the high street into a jumble sale and there is no sign that the majority of retailers are ready to leave the village hall just yet. Stores will have to start passing on cost increases soon but, with many on permanent Sale, how they achieve that will be complicated.

Some retailers are already thought to be bringing prices up just to mark down again and maintain their margins. Others will have to increase their prices in order to survive.

While retailers work through how they pass on costs, the high street picture remains gloomy. There is little evidence that consumer confidence has improved – Wolfson himself said the most important thing the Government can do is to work to improve this – and if shoppers see prices rising, they will undoubtedly worry.

Worse still, shoppers could feel they are being cheated. It is vital that retailers find the right strategy.

Jennifer Creevy is news editor of Retail Week