The chief executive of Next gave warning yesterday that the first clothing inflation for more than a decade could hit the high street early next year.

Simon Wolfson told The Times that price rises of up to 5 per cent may be necessary to cope with the higher cost of products coming not only from China, but across Europe, given the strength of the euro against the pound. He said: “We will begin to see the higher costs coming through in spring, summer next year. The way that retailers are going to have to cope with this is to pass the increase on.”

The comments came as Next revealed the extent of the UK consumer downturn by reporting an 8.9 per cent fall in like-for-like sales for the first quarter - the 13 weeks to April 28. Next Directory sales fell 1 per cent.

Analysts had expected even worse, and the relief pushed Next's shares up 74p, or 6.03 per cent, to £13.02. However, Mr Wolfson said that he feared that the retail sector's slowdown could last into 2009, given the squeeze on disposable income from rising fuel and food bills and higher mortgages.

Experts believe families will have to spend £800 a year more at the supermarket, given the rising cost of rice, bread and other everyday items, while petrol has raced to an all-time high as the oil price exceeds $120 a barrel.

Mr Wolfson said: “It's not a matter of perception. The problems with the economy are rooted in reality, higher mortgage bills, food bills, fuel bills, increased taxes. That is not a question of how people feel, but the income they have got to spend.”

Shoppers have benefited from deflation across the clothing sector since the mid-1990s. Debenhams in March said that Chinese clothing suppliers were seeking price rises of up to 10 per cent, given sharp increases in the price of cotton on commodity markets.

Mr Wolfson said that there was strong inflationary pressure in Turkey, as well as Portugal and Italy, where Next sources a lot of stock. He said: “People are talking about price rises for next year. I think it will be less than 5 per cent, but the increases will be there.”

Next, the UK's second-biggest clothing retailer,said like-for-like sales in its financial year's first half were likely to be 7 per cent below the same period a year ago. It forecast full-year pre-tax profits of £430 million to £460 million, in line with City forecasts. Pre-tax profits last year were £498 million.

Mr Wolfson said that the one ray of light for the high street was better weather, with sales since the start of May thought to have climbed by as much as 2 per cent.

However, he added that the volatility in consumer spending was unprecedented. “The market is difficult to read,” he said. “The ups and downs are larger than I've ever seen them.”

Fraser Ramzan, analyst for Lehman Brothers, said that Next's prudent approach to the downturn - which includes buying £50 million less stock for the first half - was working.

He added: “We believe buying the shares represents a leap of faith that management's efforts to reposition the brand, stores and product will succeed. We already think they are.”

Tony Shiret, retail analyst for Credit Suisse, countered that sales densities in Next were half 2001-2002 levels. He said: “It is difficult to avoid the conclusion that Next Retail is still struggling badly. It needs to start making real fundamental progress or contemplate the alternatives, in our view."

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