UK retail giant Marks & Spencer is to close 27 stores and axe over 1,200 jobs as it seeks to cut costs after UK like-for-like sales fell 7.1% over the Christmas trading period and discounts hacked into margins.

The moves confirm rumours circulating yesterday (6 January) and are described by chairman Sir Stuart Rose as "the right action to maintain the strength of our business." In total, M&S hopes to save up to GBP200m.

The retailer intends to shut two of its general merchandise chain stores and 25 underperforming Simply Food stores, with the loss of around 780 jobs.

It will also reduce its head office headcount by 15% or 450 staff, with workers at its Per Una brand based in Oxfordshire among those losing their jobs.

Sir Stuart added that the cutbacks were necessary given that he expects "challenging economic conditions to continue for at least the next 12 months."

The company will also cap employees' annual increases in pensionable pay to 1%.

The cuts come as Britain's biggest clothing retailer said group sales in the 13 weeks to 27 December fell by 1.2%.

UK sales were down 3.4%, with clothing sales slumping by 6.5%. On a like-for-like basis, UK sales of general merchandise (which includes clothing and footwear) fell by 8.9%.

However, M&S said it maintained its market share in clothing, helped by strong demand for its kid's wear and lingerie.

"Our trading stance throughout the quarter enabled us to offer our customers great value, grow our volumes, maintain our leading market position and uphold our ethical stance," Rose said.

Sales volumes were driven by pre-Christmas one-day sales, which Sir Stuart said helped "kick-start Christmas - but this increased promotional activity has cut into margins.

M&S now expects UK retail gross margin for the full year to be around 175 basis points lower than last year.

Internationally, M&S said sales grew 26.9% during its third quarter, helped by the opening of new stores. Its online business also performed strongly in the third quarter, with record traffic driving sales up 29%.