Business leaders warn of Christmas sales meltdown

Business leaders warned of a Christmas sales meltdown today after a bigger than expected fall in high street sales in the first half of November.

A 46 per cent balance of retailers said sales were below a year ago, while 40 per cent predicted worse to come next month, the CBI business group's distributive trades survey found.

The gloom caps a week which has seen Woolworths and MFI crash into administration and disappointing updates from other big names such as Currys' owner DSG International.

Andy Clarke, chairman of the CBI's distributive trades panel, said: "Christmas is going to be extremely tough this year, with retailers having to work harder than ever to keep the tills ringing."

The CBI's survey was carried out between October 28 and November 12 - although the Bank of England slashed interest rates by 1.5 per cent to 3 per cent on 6 November.

Chancellor Alistair Darling also attempted to kick-start high street spending with a temporary VAT cut worth £12.5 billion this week.

Mr Clarke said the added pressure of changing millions of prices to reflect the cut would be an "unwelcome and costly burden" on the sector.

"Lower petrol prices and recent cuts in interest rates should help put a little more into people's pockets, as will the VAT cut, but only if retailers pass it on before Christmas," he added.

The CBI said those retailers linked to a plunging housing market continued to suffer but there was also a sharp decline in sales volumes among grocers - ending two years of continuous growth.

The bleak retailing environment has prompted a 57% balance of firms to cut investment plans - the worst result in the survey's 25-year history.

IHS Global Insight economist Howard Archer said the figures "added to the litany of bad news" from the high street and forecast the Bank of England could slash interest rates again by as much as 1% at its meeting next week.

"We suspect that there will be a lot more discounting, special promotions and flash sales right up to Christmas to try and get hard-pressed consumers to spend.

"It is also likely that there will be some extremely attractive bargains in the New Year sales," he said.