Retailer Marks & Spencer has today slashed its sales growth forecast.
It signalled that it expects consumer spending to remain weak as the government focuses on cutting debt and the economy struggles to grow.
M&S said it expected a three-year growth drive announced in November 2010 to deliver an additional £1.1-1.7 billion of sales. That is down from an original aim of $1.5-2.5 billion.
The group said that due to the growing popularity of online shopping it would invest £200m less than planned opening new selling space in Britain.
This mirrors cutbacks by supermarket giants Tesco and J Sainsbury.
M&S said that international sales were up 5.8% last year but it noted that trading conditions in Ireland and Greece were difficult with the two countries impacted by weakness in their economies.
Shoppers "feel a bit more squeezed than last year," said chief executive Marc Bolland, dashing hopes that easing inflation might tempt Britons back into spending after a protracted squeeze on their incomes from rising prices, muted wages growth and austerity measures.
Marks & Spencer's gloomy prognosis spells bad news for the UK economy which tipped back into recession in the first quarter and is heavily reliant on consumers to drive growth. A survey yesterday said Briton's household finances worsened at their fastest rate in four months in May.
M&S's new sales forecast came as it reported its first fall in full-year profit for three years, as even its relatively older and more affluent shoppers felt the chill from the tough economic backdrop.
Profit before tax and one-off items dipped 1.2% to £706m in the year to March 31, cushioned by cost cutting and compared with a forecast for £694m. Full-year sales rose 2% to £9.9 billion, with sales at British stores open over a year up 0.3%.
For the current year M&S forecast space growth of 3% in Britain, reducing to 2.5% in the following year, with a further reduction thereafter.
"Our international plans are on track, our multi-channel e-commerce plans are on track but the UK, simply because of the economic outlook has changed, is not completely delivering," Bolland told said.
The M&S CEO said first-quarter trading had been tough, held back by the wettest April since records began and a soggy start to May. But he was optimistic the group would benefit from celebrations around the Queen's diamond jubilee and the London Olympics.
M&S will update on first quarter trading on July 10. Last month, M&S missed fourth-quarter sales forecasts after running out of best-selling women's knitwear and footwear lines, but said it would meet year profit expectations having made further cost savings.
M&S said then it had enjoyed a good start to its spring/summer clothing launch. But after its update on April 17 Britain endured a further month of torrential rain that is particularly unhelpful for fashion sales. Better weather is forecast in the next two weeks.
Bolland said the firm's UK pilot stores had delivered good results - a 2.5% sales uplift - giving it confidence to roll-out the programme. And he said the firm was on track to become a truly international multi-channel retailer.
"By the end of this year we will be transacting from 10 websites worldwide and opening around 100 international stores per year," he said.
The company's Finance Director Alan Stewart said M&S was prepared should Greece, where the group has 29 stores, exit the euro. M&S would stay in the country, but had taken a £44.9m write-off to reflect the loss of goodwill and the impairment of assets there, he added.
