The sales woe at Marks & Spencer sent shudders through some of Britain's biggest stocks today. Builders were also affected after bad news that sent Taylor Wimpey shares plummeting.
With consumer spending prospects facing a growing squeeze from soaring food, petrol and energy bills, investors took the gloomy update as a fresh signal to sell retail stocks as a chill wind blew through the sector.
The FTSE 350 general retailers' index fell more than 7 per cent, while food retailers were more than 4 per cent lower.
Alongside M&S - which shed as much as 21 per cent - fashion chain Next's shares slipped more than 7 per cent as City analysts feared the worst.
Panmure Gordon's Philip Dorgan advised shareholders to sell Next, saying: "The M&S trading statement reflects in part a sector-wide issue and we have reduced our forecasts to even further below management guidance."
The broker also downgraded rival Debenhams on the back of the update, sending shares in the department store chain down more than 13 per cent.
Meanwhile the news of a "significantly weaker" performance from the M&S food business also hit the UK's biggest supermarkets.
Sainsbury's fell 7 per cent, while Tesco dropped 4 per cent, although Morrisons - more value-orientated than its rivals - saw a smaller decline.
Other blue-chip casualties included B&Q owner Kingfisher as the fresh evidence of consumer belt-tightening hit home. Shares in the group lost more than 3 per cent.
M&S chief executive Sir Stuart Rose said: "At our preliminary results in May, we reported a mixed start to our 2008/9 financial year and expressed caution about consumer sentiment.
"Since then, consumer confidence levels have deteriorated markedly and market conditions have become more challenging."
The director of M&S's food business, Steven Esom, is also leaving the business with "immediate effect", the group said.
Sir Stuart said the current slowdown was the "third dab of the brakes" seen since last November. The City currently expects profits of around £870 million but analysts are likely to lower their forecasts following the vote.
The sudden departure of Mr Esom - who joined just over a year ago - came because the company wants to "increase the pace of change" in the food business. In May M&S announced initiatives such as pilots to sell branded food favourites such as Marmite and Heinz baked beans for the first time.
"We want to make sure that our business is fully equipped to meet the downturn, which is going to be longer and more hard-fought than first anticipated," Sir Stuart said.
At the same time, it was revealed that Taylor Wimpey, failed to raise the £500m it said it needed just two days ago, erasing over half its stock market value and forcing its finance director's resignation.
Warning of a "significant downturn" as sales and prices fall in housing markets in the UK, United States and Spain, Taylor Wimpey said the plea for extra capital it launched on Monday had been rejected by new investors.
Britain's biggest housebuilder by number of homes built, formed through a takeover just a year ago, joins the growing list of companies ensnared in a housing market where prices are tumbling and demand for new mortgages is at a record low.
"We seem to be in a vicious circle of doom and gloom," said Simon Surtees, a fund manager at Gartmore Investment Management. "It's been taken by the market effectively as a failed rights issue."
Shares in Taylor Wimpey were down more than 50 per cent at lunchtime, having fallen as low as 25p. Just over a year ago the stock, which has plummeted around 85 per cent this year, was worth 540p.
Other housebuilders were also hit, with Barratt Developments down 29.5 per cent, Persimmon off 18.6 per cent and Bovis Homes 8.6 per cent lower.
Taylor Woodrow, which is burdened by a £1.7bn debt load - among the biggest in the sector - said it does not expect a recovery in the UK housing market in the short term and does not see any material recovery in the United States until at least 2009.
The company said in a trading update for the six months to end-June that housing reservations had declined sharply since its last update in April, with UK housing reservations down 45 per cent year-on-year and both its order book and home completions down a third.
Taylor Wimpey Chief Executive Pete Redfern said he was confident of raising the cash in the near future but acknowledged it was difficult for investors to commit funds due to market conditions.
The raising of capital would also secure renewed banking terms with Taylor Wimpey's lenders, which the company has warned it needs to avoid breaching its banking covenants in early 2009.
Analysts have been warning that housebuilders, struggling after the global credit crunch ended a decade-long UK housing boom, are set for a round of refinancings as the market continues to deteriorate.
Refinancing options include rights issues, which are seen as risky following mortgage lender Bradford & Bingley's struggle to pull one off since May, cash injections by strategic investors such as pension funds or even debt-for-equity swaps.
Taylor Wimpey has been forced to seek emergency funds as the weight of its debts combined with sharp drops in sales and imminent asset writedowns are putting its balance sheet under pressure and threatening its future.
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