Next chief executive Simon Wolfson does not expect any fundamental return to improved consumer sentiment despite emerging signs of economic recovery.

Wolfson said: “Technically we are coming to the end of the recession, but in terms of the consumer, I am not expecting spending levels to return to the levels of 2004 to 2005. People are remaining cautious and savings ratios are up.”

He added that there was also a downside risk next year as the government cuts costs and raises taxes.

He spoke as Next smashed profit forecasts for its first half to July, with pre-tax profits up 6.9% to £185.5m. It now expects annual profits to be near to last year’s figure of £429m.

Wolfson said the retailer had beaten profit expectations through better than expected store sales and improved costs and margins.

He also said that Next has made steps to improve the fashionability of its ranges and is reacting to trends early rather than waiting to see if they work before adopting them.

Retail like-for-like sales were down 1.2% for the half, with sales being helped by good weather in May and early July.

The retailer expects like-for-like sales for its second half to be down between 3.5% and 6.5%.

Next is also adding to its international business with a trial of wholly-owned company stores in some European countries, including Germany. It also launched a new dedicated US site as an
addition to its Directory business,

Wolfson said Next’s home ranges had been the best-performing part of the business for the past two months. He also ruled himself out of the race to succeed Sir Stuart Rose at Marks & Spencer, saying Next is the only retailer he would work for.

Singer Capital Markets analyst Matthew McEachran said that although retailers have been performing better than feared since Lehman Brothers’ collapse a year ago, Wolfson’s caution was right.

“We have seen confidence pick up, but from a very low point. Apart from that, retailers are facing a VAT increase and potentially big job cut in the public sector next year.
For the consumer economy, things are flat at best,” McEachran said. 

This Christmas, Next will bring its key Sale forward one day to Boxing Day. It said this was a one-off, as the 27th falls on a Sunday this year.