David Prosser: There is no end in sight for the great retail recession

Outlook Panic over, then. Retail sales fell by only 0.1 per cent in October, according to the Office for National Statistics, far less than economists and the retail trade itself had been predicting. What on earth has the high street been moaning about these past few weeks?

If only the woes of our leading retailers could be dismissed so easily. All year, the ONS's reports on the state of the high street have been met with the same reaction from people on the ground – a response one might characterise as falling between disbelief and derision.

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The reports coming out of leading retailers simply do not support the picture painted by the ONS.

Take the events of this week alone. Woolworths is considering selling its 800-strong network of stores for a pound. MK One has gone into administration for the second time this year. Marks & Spencer and Debenhams have been forced into slashing prices at a time of year when they should be rubbing their hands with glee at the prospect of Christmas spending. The latest sales figures from John Lewis are dire. The list goes on and on.

No wonder the British Retail Consortium rejected the ONS numbers outright yesterday. Its figures show that sales fell much more markedly in October.

One problem with the ONS figures is that they are weighted heavily towards food sales, which account for a little over half the index. Spending on food is naturally less discretionary – in difficult times, people may desert posh Waitrose stores in favour of bargain-basement Lidl, but they don't stop buying altogether.

Indeed, food sales were actually up by 1 per cent in October. The rest of the underlying data in the ONS figures was much bleaker. Sales of household goods and clothing, for example, fell by 1.5 per cent and 3.4 per cent respectively last month.

The other difficulty with this measure is that it doesn't tell you anything about retailers' profit margins. Slash the price of what you're selling to a quid and you'll shift plenty of it – maybe even 800 Woolworth's stores – but not at a sustainable level of profit.

The evidence from M&S and Debenhams is that leading retailers now feel their only option is to cut prices radically. Again, the statistics support this: the implied price deflator for October was 0.6 per cent higher than the year before, the ONS said, suggesting that retailers see little scope to increase prices.

The Bank of England is certainly likely to take these numbers with a pinch of salt when its Monetary Policy Committee next sits down to decide whether mortgage borrowers need to be given even more incentive to spend their way out of the recession. Its own agents survey, published on Wednesday, made much more depressing reading for the retail trade, warning as it did that the concept of shopping as a leisure activity in its own right has become a thing of the past.

Even so, further interest-rate cuts won't be enough to save the high street, or at least not before the crucial Christmas spending season. In a climate where hundreds of new job losses are being announced every single day, spare cash is to be hoarded rather than splurged.

Would a cut in VAT help? It is one measure that retailers have been pushing the Chancellor to announce when he unveil's Monday's pre-Budget Report. It's a possibility. The success M&S seems to have enjoyed from yesterday's one-off 20 per cent price cuts suggests customers can be persuaded to spend more if discounts are available.

But Alistair Darling does not have the option of offering such large savings. He can cut VAT from 17.5 per cent to 15 per cent, but that's relatively small beer. Still, every little helps and in this world, retailers will take whatever is on offer.