Swedish fashion giant H&M first half profits plunged as cotton prices and sourcing inflation soared.

Operating profit plummeted to 9,007m SEK (£875m) from 11,943m SEK (£1.16bn) last year for the six months to May 31, despite sales edging up to 52,135m SEK (£5.06bn).

H&M chief executive Karl-Johan Persson said: “Our profitability remained strong despite strong negative effects from many external factors such as the high cotton prices..in addition to the cost inflation in the sourcing markets.”

Persson said the market was “very challenging” and consumer spending power had decreased due to increasing interest rates, higher energy prices and austerity measures.

The retailer said that the UK, along with the US and China, would be its largest expansion market in 2011. It plans to open 250 stores worldwide throughout the year.