Next had cut its full year forecast in January

The comments came as Next unveiled an 18% rise in pre-tax profits to �422.9m ($789m) in the year to 29 January.

The retailer said that the year ahead would be "challenging" but it should continue to grow its sales and profits.

Next is one of the UK's biggest fashion retailers and earlier this year warned that its profits would be hit by a poor end-of-year clearance sale.

Sales dip

We are very cautious about the outlook for consumer spending in 2005 Simon Wolfson, Next chief executive Check Next's share price

Next revealed that trading in the first seven weeks of the new financial year had seen underlying sales slip.

Like-for-like sales in stores which have not been impacted by the opening of new stores were 0.9% lower than in the same period a year earlier.

Meanwhile, like-for-like sales in 333 stores, including those affected by new space, were 3.5% lower than the previous year.

Next said the poor performance of the past seven weeks was "indicative" of an underlying easing of consumer demand.

"We are still very cautious about the outlook for consumer spending in 2005," chief executive Simon Wolfson said.

His comments echo those voiced by other retailers, including House of Fraser, Boots and Jessops.

Total sales for the Next brand were 8.8% higher in the seven weeks to 20 March, helped by stronger sales at the Next directory.

Fewer discounts

Next had previously warned that 2005 would be "more challenging".

Chairman David Jones said: "Whilst it is important not to draw too many conclusions from short periods of time, the first seven weeks of the current year would suggest that our caution was well placed."

He added: "I remain confident that despite challenging trading conditions, we will be able to advance both total sales and profits in the coming year."

Profitability at the group improved largely as a result of better buying margins and improved cost control, the company said.

However, Mr Wolfson said that rising costs would require "a more conservative approach to selling price reductions".

Shares in Next fell 17 pence to 1,563p in early trade.