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European rivals will outstrip UK high street giants, warns Moody's

Next and Marks & Spencer are predicted to suffer from “anaemic growth or even a contraction of earnings” - Chris Ratcliffe/Bloomberg
Next and Marks & Spencer are predicted to suffer from “anaemic growth or even a contraction of earnings” - Chris Ratcliffe/Bloomberg

Moody's has warned that British retailers will be outstripped by their European rivals next year as disposable incomes are squeezed by slowing wage growth and a return of inflation.

Despite robust retail sales growth this year the credit rating agency has warned it expects high street bellwethers Next and Marks & Spencer to suffer from “anaemic growth or even a contraction of earnings” next year.

Analysts at the credit rating agency predict these retailers will “continue to face a challenge to retain their market shares and maintain profitability levels against the combined onslaught of a broad range of competitors, including value-focused Primark, international fast fashion retailers like H&M and Zara, relatively new but rapidly growing names such as Superdry and online specialists Asos, Boohoo and Missguided.”

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In its study of European retailers, seen by The Daily Telegraph, only the UK retail names are listed as losers for next year. Debenhams, House of Fraser, B&Q owner Kingfisher, Marks & Spencer, New Look and Next are all predicted to have negative earnings.

Discount retailer B&M Bargains is the only UK retailer forecast to lift earnings by more than 15pc next year.

“The looming prospect of interest rate rises will mean UK consumers continue to search for value and it will also curb any meaningful growth in discretionary spending,” said Moody’s.

The agency predicts UK retailers to grow earnings at an average 3.1pc next year, compared with 5.2pc for their continental rivals.

Higher food and clothing prices, driven up by the weak pound, fuelled UK retail sales growth last month. Like-for-like sales rose by 1.9pc in September according to the British Retail Consortium and KPMG, far higher than the 0.4pc recorded last year.