Next chief executive Simon Wolfson has said the market is bottoming out but said it is premature to call a recovery and that lower VAT was distorting the real consumer picture.

He said: “The downturn is not as bad as the hyper gloomsters had been predicting. We are not seeing recovery, we are seeing bottoming out. It is not getting worse but remaining negative and will do for the rest of the year.”

Next reported a better than expected first quarter, with like-for-like sales for its retail business down just 2.3 per cent – estimates were for a decline of 6 per cent and 9 per cent. Total sales were up 1.1 per cent for the 14 weeks to May 2.

Wolfson said that the good weather and an early Easter prompted better results but warned the second quarter would not be as strong, particularly as it was against much tougher comparatives.

He said that as VAT is lower this year the actual cash taken in stores has not grown as much as the actual sales retained post-VAT by retailers. “This means retail numbers are being distorted,” Wolfson said.

He also said the focus on unemployment figures is shadowing the fact employment figures haven’t actually dropped that sharply. In the year to February the number of unemployed people increased by 486,000, according to the Office of National Statistics, but the number of people in employment was down only 227,000.

Wolfson said retailers need to focus on the employment figures, rather than unemployment. He said: “That is really important, especially for retail, and no one is looking at it.”

He added that bank holiday trading was not as strong as it might have been as it fell too close to Easter weekend.