‘Less able to pay down its debts’

Ratings agency Fitch said the low profit margins and relative lack of hedging, where companies agree with suppliers to set prices far in advance, leave it vulnerable to the volatility.

Fitch expects Iceland’s profits this year to drop below £100m, compared with £126m last year, as it will not be fully able to pass on the increasing energy costs.

The agency added that if energy costs continue soaring, profits will be consistently lowered and it will be less able to pay down its debts. Despite the bleak outlook for energy prices Iceland said it would increasingly pick up customers from rivals, as shoppers move from fresh to frozen goods to save cash.