Next, the clothing retailer, gave a warning yesterday that its sales might slip further and the strong dollar could push up prices, but Simon Wolfson, the chief executive, said there was no justification for panic over the high street downturn.

Mr Wolfson said that despite the bleak outlook for the retail sector over the coming year, it was important to strike a balance. He insisted that consumers would still shop this Christmas and their disposable income could rise next year when energy costs and food bills begin to fall.

He said: “It is not the end of the world. It is going to be quite volatile in the run-up to Christmas and it is going to feel very late this year. Christmas Day falls on a Thursday and people will work right up to the day itself.

“There is no question, it is going to be a nerve-racking November, but I do not think we are in a crisis. The word is not one that would apply to the vast majority of people outside the banking and financial sector at the moment.”

The comments came a day after Sir Stuart Rose, executive chairman of Marks & Spencer, urged critics to focus on the positives and to “wear a smile”.

PricewaterhouseCoopers, the City accountant, fuelled more gloom yesterday by revealing that it believed consumer spending would fall by 0.5 per cent next year – the first drop since 1991.

Mr Wolfson said it was clear that there was little prospect of a trading upturn until 2010, but he insisted that there was also little reason to fear things will get any worse.

Next reported a 4.4 per cent fall in like-for-like sales for the 14 weeks to November 1, better than many in the City had expected. Mr Wolfson said recently that like-for-like sales could fall by as much as 7 per cent.

Online and catalogue sales at Next Directory rose by 2.1 per cent in the quarter. “I don’t think the environment is going to change radically,” Mr Wolfson said. “People are spending less and face cost pressures, but at some point next year fuel bills will begin to fall, food bills will fall and energy bills are going to fall.

“There has been some improvement in our product, there is much more newness and much more attention to detail, but I’m not going to be complacent about that and our sales could easily slip back to the bottom end of the range.”

However, Mr Wolfson conceded there were fears about the potential effects that the resurgent American dollar may place on profit margins in the second half of next year.

The pound fell to a six-year low of $1.5265 in the past two weeks and the drop could have serious repercussions on those clothing retailers that source most of their clothing from the Far East. Almost all deals are transacted in US dollars.

Mr Wolfson said: “I think spring/ summer will be fine as most of us have hedges in place until then, but the dollar will have a significant impact on prices and margins next autumn/winter if it stays where it is.

“You are talking about a move from $1.90 to below $1.60. It is going to mean that we will either have to put prices up or accept a lower margin.”

Shares in Next rose by 63p, or nearly 6 per cent, to £11.88 as analysts welcomed the update. The stock has climbed nearly 40 per cent in the past month.

Nick Bubb, retail analyst at Pali International, raised his profit forecast for the current financial year by £20 million to £420 million – only a week after cutting his prediction by the same amount in anticipation of a far bleaker trading statement.

He said: “It looks as if the improvements that Next has made this year in its ranges and the store refurbishments have helped it to stabilise or even increase its clothing market share in a weak market, while the online shopping boom is still helping Next Directory.”

However, Mr Bubb cautioned that October had been far tougher than the start of the quarter in August. “We wouldn’t get carried away. The Next core customer is still going to be hit by rising unemployment and falling house prices.”

Phil Dorgan, analyst at Panmure Gordon, added: “There is a bull argument here and we have sympathy with it. Next has read the market right. It has controlled profits nicely and is delivering.”

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