The group failed to meet internal sales targets so the top brass including chief executive Stuart Rose will miss out on a bonus this year and store staff will see their bonus cut from last year's £26m to £12.8m.

his means the company's 62,000 customer assistants, who received up to £500 last time, will see payouts fall by half to a maximum of £250.

Sir Stuart said that following an unprecedented period of deflation since the 1990s, the group is now having to cope with increasing commodity prices in both food and textiles.

"Consumer confidence has fallen off, customers are worried about their financial health and we expect 2008/09 to be a challenging year, but we'll keep investing in the business," he said. "It's very likely we won't come out of this slowdown until 2009 and it could continue into late 2009, we are planning for it to be longer rather than shorter."

Britain's largest clothing retailer, which is generally seen as a bellwether for consumer spending, said adjusted pre-tax profits rose 4.3 per cent to £1.007bn in the year to March 31, slightly higher than analysts' expectations.

The shares closed the day down five per cent, a fall of 21p to 396p on market expectations that the slowdown in consumer spending will deteriorate.

Credit Suisse analyst Tony Shiret said he believed Marks and Spencer's annual profits could fall to between £800m and £900m this financial year.

It is the first time in a decade M&S has made a £1bn profit, bringing to a close the four-year turnaround under Sir Stuart's leadership.

But the group said current trading has been mixed with April proving a difficult month.

However May has shown a marked improvement thanks to a fortnight of sunny weather.

UK like-for-like sales fell 0.5 per cent in the year to March 31. Both general merchandise and clothing saw increases in the first six months to September, but in the second half general merchandise like-for-like sales fell 3.2 per cent and food dropped 1.1 per cent.

Sir Stuart said he planned to spend £800m to £900m this year on expansion into areas such as international and online while cutting £50m of costs from other parts of the business.

Following the decision last week by Leeds-based Northern Foods to temporarily close one of its factories after failing to agree a new contract with Marks & Spencer, Sir Stuart said Northern would remain M&S's biggest food supplier.

M&S is currently conducting a review of its supplier base under a programme called Project Genesis. Critics who believe the retailer is planning to cull its supplier base have given the programme the nickname Project Genocide.

Yesterday M&S confirmed plans to open a new flagship store in Bradford in 2011 as part of the long awaited £300m Broadway shopping centre.

A major new 150,000 store in Leeds' Eastgate Quarter development, which will be one of the retailer's biggest stores outside London, is due to open its doors in 2012. The new flagship store will include a complete range of women's, men's and childrenswear as well as a home section, bakery and restaurant.

M&S has also announced plans to build a £67m distribution centre in Bradford, creating 2,500 jobs. Subject to planning permission, it hopes to open one of the biggest transport and distribution hubs in the UK in 2010.