Sir Stuart Rose, Marks & Spencer’s chief executive, has accused the Government of having been “in denial” about the severity of the consumer downturn and said that the retail giant was facing a challenging year.

Despite announcing pretax profits of just over £1 billion at M&S for the past 12 months, its best performance for a decade, Sir Stuart said that his worst fears about the economic climate were coming true and he forecast that the slowdown could last deep into next year.

“In January, I said there was a downturn coming,” Sir Stuart said. “I got beaten up for it, but I said it was going to be tough. The Government was in denial about it but now has accepted that the downturn will be longer rather than shorter. I think there was a reluctance at the back end of last year and in January to accept there was a problem.”

Sir Stuart said that while he was a shopkeeper rather than a politician, a cut in interest rates would be a welcome boost to consumer confidence.

Shares in M&S fell 18¾p, nearly 5 per cent, to 398¼p as analysts down-graded pretax forecasts for the retailer and predicted that profits may fall as low as £800 million in 2009.

Pretax profits for the year to March 29 rose 3.8 per cent to £1,007 million, excluding one-off gains, and total sales rose 5.1 per cent to £9 billion, despite a 1.7 per cent fall in like-for-like sales in the fourth quarter.

The low profit and sales growth means that the bonus pot for store staff is halved to £12.8 million. Sir Stuart, the executive directors and senior managers, will miss out altogether. “We didn’t earn it,” he said.

The M&S chief said: “We had a very good year, but a year of two parts; the first was pretty good, the second less good. We are in a tougher market now, we cannot deny that consumer confidence has fallen off and customers are worried about their financial health. The market has been very difficult to read. It’s very difficult to read the tea leaves.”

M&S will spend between £800 million and £900 million in the coming year on expansion in Britain and overseas, but that is up to £200 million less than stated previously.

The store modernisation programme is being scaled back and only 80 per cent of the estate will have been given a makeover by March next year, as opposed to an earlier goal of 90 per cent.

M&S is also targeting £50 million of cost savings, although Ian Dyson, the finance director, said that there were likely to be only a handful of redundancies.

Sir Stuart said that M&S would press on with plans to open its first store in China this autumn. Profits in the international business were up 33 per cent in the year to March at £116.4 million.

He insisted that achieving £1 billion in profit was not an important milestone in itself rather than an indicator that M&S was now a sustainable and profitable business.

“A number is a number,” Sir Stuart said. “We shouldn’t get over-excited.”

Tony Shiret, a Credit Suisse analyst, said that the £1 billion mark was reached only after a lower-than-expected interest charge.

Mr Shiret said: “Our view on M&S remains that it is trying to execute a difficult repositioning in a very tough market. So far, the evidence is that it has not suceeded.”

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