By Jonathan Davies

Retailers are likely to either raise prices or cut jobs in order to pay the new National Living Wage, according to credit rating agency Moody's.

The National Living Wage will start at £7.20, compared to the current National Minimum Wage (NMW) which is £6.50, and will be compulsory for over 25-year olds, before rising to £9 an her by 2020. It has been criticised as a re-branding of the minimum wage.

But Moody's said the rise will have a huge impact on retailers, hotels and restaurants which have high wage costs.

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

Sven Reinke, an analyst at Moody’s, 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% 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.”

The British Retail Consortium (BRC) said retailers would be able to manage with the first increase relatively easily, but the later increases to £9 would put them 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," a spokesperson said.