Mixed messages are coming from the High Street and the hospitality industry. Ahead of the Budget on November 26, the bosses of fashion giant Next and pub chain JD Wetherspoon are warning of the damaging impact on consumer spending of tax increases and tougher legislation.

White goods firm AO, leisurewear chain JD Sports and Mitchells & Butler – the pub business – also this week raised the alarm.

Andrew Bailey, Governor of the Bank of England, highlighted data showing families are reining back expenditure; this month’s retail sales slipped for the 12th consecutive month.

Investors will now be asking whether retail and hospitality stocks are best avoided. Complicating the decision, however, is evidence that some more affluent consumers appear undeterred – and that Christmas might not necessarily have been cancelled.

Fashionable: High Street favourite Next, modelled

On Wednesday, John Lewis said sales of some retro-style Christmas tree baubles were 293pc up on 2024, while Marks & Spencer reported festive food orders were already 8pc higher than last year.

This news followed better-than-expected first-half results from Kingfisher, the B&Q and Screwfix group. It said that, thanks to lower mortgage rates, households are splashing out on items to renovate bathrooms and kitchens.

It has also emerged that some leading UK hedge fund managers betting against Kingfisher are now millions out of pocket.

If these supposed experts are struggling to assess the outlook, should private investors stay away? Or is this the moment to back companies that can thrive despite adversity?

Affluent people seem attached to their indulgences such as holidays, nights out and home makeovers. A fun-packed Christmas appears to be a priority, too.

Brendan Gulston, joint manager of WS Gresham House UK Multi Cap Income fund, contends: ‘Well-run businesses with scale, brand strength and efficiency are positioned to take advantage and consolidate market share.’

Here’s what you need to know.

SOURCES OF DISCONTENT

Lord Wolfson, chief executive of Next, the £14.9billion High Street bellwether, says ‘anaemic economic growth’ looms due to factors such as ‘a rising tax burden that undermines national productivity’.

Threats to the jobs market include the Employment Rights Bill, which he described as a ‘wrecking ball’, and artificial intelligence (AI).

If people fear being thrown out of work, then they may be less keen to shop for clothing and homeware at Next.

The almost equally outspoken Sir Tim Martin, chief executive of JD Wetherspoon, has been emphasising the disastrous impact of VAT on pubs.

Food and drink in pubs are subject to 20 per cent VAT. But supermarkets do not pay VAT on food, which enables them to subsidise beer prices.

Martin is almost certain to be even more vocal at next Friday’s final results, although he is predicted to unveil a 5.1 per cent bounce in like-for-like sales.

FACTS BEHIND THE FIGURES

Wolfson’s downbeat pronouncements hit shares. But, as Russ Mould of AJ Bell reminded us, he is adept at under-promising and over-delivering, which may be why Next’s share price is still 26 per cent up this year, at 12,190p.

Next has forecast full-year, pre-tax profits will be 9.3 per cent higher than last year, and highlighted the 11 per cent bounce in full-price sales in stores and online, where it sells its own brands and dozens of others in the UK and overseas.

Fashion trends are becoming more international, which Next attributes to the influence of Netflix. This could compensate for lower British turnover.

Among the analysts who follow Next, 13 rate the shares a ‘hold’ or consider them poised to outperform the sector. Another seven say shares are a ‘buy’, UBS targets a price of 14,500p. And JD Wetherspoon is up nearly 12 per cent this year to 682p, propelled by summer demand.

Chancellor Rachel Reeves is unlikely to heed Martin’s call for a VAT concession. Yet only one analyst considers the shares a ‘sell’. The rest rate it a ‘hold’ or a ‘buy’, with an average target price of 757p.

The tax burden is forcing the closure of more pubs. But Wetherspoons is adding to its 800, suggesting it has the clout to take advantage of tough conditions.

TIME TO BE MODESTLY CHEERFUL?

AFTER the shock profits rise at Kingfisher, brokers Berenberg raised the target price for the shares to 331p. Most analysts rate them a ‘hold’. The reassessment of a retailer, which also owns French DIY chain Castorama, has raised the question as to whether the gloom surrounding others in the retail sector may have been overdone.

A measure of cheer also came from Mitchells & Butler, the All Bar One and Harvester group, which also delivered strong first-half results.

Analysts take a glass half-full view of the shares, rating them a ‘buy’ at the current 249p, with a target price of 347p.

On this basis, some well-known and other more obscure players in hospitality and retail may be worth a closer look.

YOUR OPPORTUNITIES

Gulston picks greeting cards company Moonpig, which can rely on plentiful customer data to boost sales. Most analysts rate the shares, which currently stand at 221.5p, as a ‘buy’, with an average target price of 302p.

Gulston also likes Angling Direct, the fishing tackle and equipment retailer. The shares have leapt by 28 per cent this year to 52.5p and analysts rate them a ‘buy’, with a target price of 60p.

Shares in B&M, the discount chain are down 26 per cent this year. But some say this FTSE 100 business has been misjudged, especially given the improvements being made by new boss Tjeerd Jegen.

Richard Knight, of investment trust Merchants, said: ‘There has been an extraordinarily harsh market reaction to what we regard as a temporary pause in growth.

‘The balance sheet is strong. But valuation of the shares discounts any growth at all.’

Analysts rate it a ‘buy’, with an average target price of 400p.

JD Sports shares have slumped 42 per cent in a year. But it trusts that it will make great strides with running shoes in the second half. Aarin Chiekrie, of Hargreaves Lansdown, argues that JD could attract investors willing to contemplate a couple of years of uncertainty.

THE FUNDS TO FOLLOW

If you sense that some consumers may prove more resilient than others, but want someone else to pick the companies that are evolving to adapt to changing spending habits, consider a fund or trust.

Darius McDermott, of FundCalibre, picks: Artemis UK Select, where consumer discretionary stocks make up 20 per cent of the portfolio; VT Tyndall Unconstrained UK Income, whose holding sinclude JD Sports; and Premier Miton Tellworth UK Smaller Companies.

DIY INVESTING PLATFORMS

AJ Bell

AJ Bell

Easy investing and ready-made portfolios

Hargreaves Lansdown

Hargreaves Lansdown

Free fund dealing and investment ideas

interactive investor

interactive investor

Flat-fee investing from £4.99 per month

InvestEngine

InvestEngine

Account and trading fee-free ETF investing

Trading 212

Trading 212

Free share dealing and no account fee

Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.

Compare the best investing account for you