RETAILERS are likely to increase prices or cut jobs to pay for the rise in the minimum wage, according to credit rating agency Moody’s.

The minimum wage, now £6.50 an hour, will rise next year to £7.20 for people over 25, followed by further increases to £9 by 2020.

“Ultimately, we expect retailers to pass on high labour costs to customers,” Moody’s said.

But in the cut-throat market of food retailing, supermarkets would have to find other ways to make the money back, the agency added.

Moody’s analyst Sven Reinke, said: “If the big food retailers could put up prices, they would do it now, but the market simply doesn’t allow it, so I’m sceptical that the large food retailers would be able to pass on 100 per cent of the costs in today’s market.

“When you go to a supermarket today you already see self-checkouts which have reduced labour intensive costs and I would expect that kind of automation to increase quicker than anticipated.”

Reinke said he expected the grocery sector, which employs about one million people, to cut jobs.

“Just a percentage point reduction would have a material impact on the total numbers. I don’t think it’s unreasonable to expect that there would be a lot of job losses.”

Other options for retailers to offset higher wage costs included reducing staff discounts and making pensions less generous, he said.

A British Retail Consortium spokesman said retailers would absorb the first increase but, as the national living wage increased, they would come under more pressure.

“The potential is always there [for price increases] but the competitive nature of the market means it’s unlikely to be significant.”

Retailers were more likely to seek greater productivity from employees than to slash jobs, he added.