Morrisons is cutting back its expansion plans as shoppers spend less and buy fewer but cheaper items to help make ends meet.

The Bradford supermarket group has reduced the amount of new selling space it intends to open to help save £200 million over the next two years.

Last year Morrisons announced it intended to create 2.5 million sq ft of space over three years. This has been revised down to 900,000 sq ft with a focus on expanding in the South East remaining a top priority.

The cutbacks were announced as part of the UK’s fourth biggest grocery chain's battle to revitalise its business after underlying sales fell 0.9 per cent in the six months to July 29, triggering a £9 million drop in profits to £440 million.

The interim dividend has been increased by ten per cent to 3.49p per share and is due to be paid on November 6 to qualifying shareholders.

Although more people are shopping at Morrisons, with an average of 11.6 million shoppers a week using its stores, their shop was smaller as household budgets remain under pressure.

With higher petrol prices pushing up the cost of running an average family car by £6 a month, Morrisons Fuel Britannia promotion attracted record numbers of customers, with like-for-like fuel sales up by 3.8 per cent.

Chief executive Dalton Philips forecast no let-up in challenging conditions which had seen its own-label products gain market share across 63 per cent of Morrisons’ lines. He expects the tough conditions to continue for the rest of this year and beyond. Its M-savers own-brand range became the fastest growing value brand with sales up 40 per cent.

He said: “Although the sustained pressure on consumer spending was reflected in our like-for-like sales performance, we have made further good progress against our strategic objectives – the building blocks which are the foundations of the future success of our business.”

Morrisons plans to expand its new fresh food format from 45 stores to 100 this year.

The move into convenience stores, launched last year with an M-local store in Ilkley , would see another 15 sites open by the end of the year, including in London where they would boost Morrisons in the capital.

Morrisons will also launch a new wine range called Morrisons Cellar as its first move into online groceries.

Mr Philips said Morrisons had developed plans to meet market conditions and the board believed it would meet its expectations for the year.