That's the Christmas shopping done then

For one day at least, the high street gloom was lifted as M&S cut prices by 20 per cent

Shoppers piled baskets high with wine and champagne at Marks & Spencer stores yesterday during an emergency 20-per-cent-off sale. As the high street retailer slashed prices to fight the slump, consumers did their entire alcohol shopping for Christmas in one go, and others snapped up luxury gifts such as cashmere jumpers with one-fifth off the price.

M&S stores stayed open until midnight last night to allow people access to the price-cutting, and there were early signs that the one-day promotion had drawn back consumers worried about the downturn. One shopper who emerged from the flagship Marble Arch branch said: "I'm being really careful with my money. I'm only here to have a look in M&S because of the sale."

Sir Stuart Rose, the M&S chairman, had announced the round of emergency cost-cutting to counter a sharp fall-off in high street spending during the past fortnight. "It seems to have touched the spot," he said last night.

Figures from the Office for National Statistics yesterday showed that retail spending increased 2 per cent in the three months to October, although they fell by 0.1 per cent last month.

The figures, the smallest rise in spending since April 2006, were better than expected for one of the most challenging economic periods for years. But commentators said they disguised deep discounting from retailers and failed to reflect the latest downwards lunge in consumer sentiment.

An ominous sign of that came yesterday in a sales update from an M&S rival, the department store chain John Lewis. In figures that may explain why M&S announced its sudden, deep discounting, John Lewis said sales slumped by 14 per cent last week. The retailer, regarded as a barometer of high street spending, said that although it expected to do better than its rivals it could not escape the downturn.

Stephen Robertson, director general of the British Retail Consortium, said: "These unexpectedly strong ONS figures suggest sales growth increasing in stark contrast to our own showing total sales actually falling in October. "Given customers and retailers are being squeezed by a whole range of costs and consumer confidence at record lows, few retailers are telling me consumers are spending more." He added: "The boss of a leading retailer told me things haven't been this bad since the early 1990s."

All major high street stores are running promotions of some kind but a divide has opened up between those holding wide-ranging sales and those offering more limited two-for-one offers on individual products.

Debenhams cut prices by up to 25 per cent for three days this week in a promotion which ended last night, and other retailers such as Gap and Threshers are printing vouchers for deep cuts for selected customers by up to 40 per cent. But Next and other stores are steadfastly refusing to slash prices now, and insist they will wait for the new year before making cut-rate offers.

Analysts said that Marks's one-day, 20-per-cent-off deal suggested that the retailer was concerned about too much stock being left over at the end of the Christmas sales season. Karl McKeever, the brand director at retail consultancy Visual Thinking, said all companies were cutting prices to some degree to ensure they kept taking money during the crucial Christmas period. "The retailers call this their golden period so they have started doing everything they can now to secure footfall," he said. Barry Matheson, the head of selling development at John Lewis, described its sudden sales plunge as "a disappointment".

He added: "Our shops look in fantastic shape at present and we have outstanding products, well promoted both in shops and online. But we are not immune from the reality of the economic crisis that grasps every headline and that is reflected in last week's result."

Economists predicted that retailers would have an "awful Christmas". Vicky Redwood, the UK economist at Capital Economics, said: "Although overall retail sales fell by just 0.1 per cent in October, the much bigger 1.1 per cent drop in non-food sales clearly suggests that discretionary spending is taking a hit.

"Household goods and clothing sales nosedived, dropping by 1.5 per cent and 3.4 per cent. What's more, anecdotal evidence suggests that the past couple of weeks have been even more shocking for retailers, as illustrated by the rash of price discounting this week." The fall-off in trade has increased the expectation that the Bank of England will cut interest rates next month.

Retailers are hoping that emergency tax cuts from the Chancellor, Alistair Darling, in his pre-Budget report next week, will encourage consumers to start spending again. But not all retailers are unhappy.

IMRG, which represents the e-retail industry, is expecting online sales in the final quarter of 2008 to be 15 per cent up on last year.