DFS warns of tough year ahead on the high street

Sofa retailer DFS has warned it expects a tough year on the high street, as household budgets are squeezed by rising inflation.

"We recognise that in 2017 the retailing of furniture in the UK faces an increased risk of a market slowdown given the uncertain outlook for consumer confidence," said the Doncaster-based firm in trading statement covering its first six months of the year.

The retailer, which also owns Sofa Workshop and Dwell, added that its margins had been hit by the 16% slump in the value of the pound since the June Brexit vote, making imports more expensive.

It said: "We saw some impact on product margins in the first half from the impact of adverse foreign exchange movements."

Earlier this month the Bank of England said it expects inflation, currently at 1.6%, to rise well above its 2% target for the next three years, peaking at 2.8% in the first half of 2018. The Bank adds it does not think wages will be able to keep pace with higher inflation.

Next and other retailers, such as John Lewis and Sainsbury's, have all warned that high street prices will rise this year as a result of the weaker pound.

However, DFS posted a 7% rise in sales in the 26 weeks to 28 January compared to last year, boosted by strong trading at Dwell and Sofa Workshop.

The group added it was "very well positioned to respond to economic headwinds and cost pressures whilst achieving continued growth in its share of the UK retail furniture market".