J Sainsbury, the embattled UK supermarket chain, has been hit with a credit downgrade from Moody's, the international rating agency which cited constrained sales, fierce price competition and pressure on the retail group's ability to generate cashflow.

The downgrade by Moody's, which cut Sainsbury by one notch to Baa2 from Baa1, follows a similar move in March by rival Standard & Poor's. S&P downgraded Sainsbury to BBB, just two notches above junk, after the group promised to return £680m (€1bn) to shareholders following the sale of its Shaw's Supermarkets business in the US.