Consumer gloom feeds through to high street retailing giants

Britons' assessment of the state of the economy fell to its lowest level for almost two years, a poll of 2,000 households showed. The downbeat survey came as Monsoon and John Lewis became the latest high street behemoths to report gloomy trading conditions. This week the CBI said retailers had suffered their weakest month in at least 22 years.

The gloom was mirrored in the US, where confidence suffered its sharpest fall for a quarter of a century in the wake of hurricanes Katrina and Rita.

The overall index of confidence, from the consultants GfK Martin Hamblin, fell to minus five from minus four, also the lowest since October last year. "Consumer mood remains relatively deflated in comparison to the earlier part of the year," Grant Montague, a divisional director at GfK, said.

Analysts, who had predicted the index would remain at minus four, said gloom over the economy had offset the boost from cheaper money. Vicky Redwood, at Capital Economics, said: "The cut in interest rates on 4 August appears to have given little boost to household sentiment." Geoffrey Dicks, at Royal Bank of Scotland, added: "While confidence sags we are unlikely to see much of a rebound in spending."

People were more pessimistic about their personal financial situation over the next 12 months, with that balance dropping to plus 10 in September from plus 12.

Trading updates to the stock market compounded the gloom. Monsoon, the clothing retailer, said sales growth had slowed from 8 per cent to 3 per cent in the latest 10 weeks. Peter Simon, its chairman, described it as a "noticeable" slowdown, adding: "The outlook in the run-up to the Christmas period is uncertain."

John Lewis said sales last week were 1 per cent down on a year ago, with flagship stores such as Milton Keynes reporting a 10.4 per cent fall, and London's Oxford Street down 5.5 per cent. Rob Collins, its director of selling support, described it as a "difficult trading environment".

This week Kesa, the owner of Comet, the electrical retailer, said sales were softer; Boots issued a veiled profits warning, while HMV reported a decline in sales volumes. Signs of lower consumer spending were matched by a rise in the number of households who plan to build their savings, according to GfK. Its index rose to plus 26 per cent from plus 21 per cent.

This echoed the latest GDP estimates on Wednesday, which showed that the savings ratio - as a percentage of total household resources - rose to an 18-month high of 5 per cent over the summer. However, the index measuring whether it was a good time to make major purchases rose to plus nine from plus eight.

Simon Rubinsohn, at Gerrard stockbrokers, said analysts were ignoring signs of life in the property market that would sustain confidence going forward. "There is a serious risk that the gloom on the high street is being overdone," he said.

The Bank of England is expected to hold interest rates at 4.5 per cent next week after cutting them for the first time in two years in August, but analysts are divided over when the next move would be. An equal number see a rate cut in November and February while a small minority believe the next move would will be up.

There was a similar story across the Atlantic, where consumer confidence, income and spending declined after Hurricane Katrina.

Retailers suffered a fresh blow yesterday from the London Mayor Ken Livingtone's decision to extend the London congestion-charge zone into the west of the capital despite opposition from 72 per cent of businesses.