Marks & Spencer Sales Fall Highlights UK Retail Gloom

Marks & Spencer, Britain's largest clothing retailer, reported its worst quarterly performance in two years on Wednesday, adding to signs of a slowdown in British consumer spending.

Like-for-like sales at its UK stores fell 2.2 percent in the third quarter to Dec. 29, significantly undershooting already lowered forecasts from analysts.

The figures followed a series of gloomy updates from British retailers concerning crucial Christmas trading when retailers can make half of their yearly sales.

Chief Executive Stuart Rose said British businesses were experiencing a "real crunch" with costs, such as energy prices, rising, but weaker consumer spending meant they were not able to increase prices.

"The market has slowed and we are concerned about the slowness of the market, and we are saying that we think that 2008, and possibly into the first half of 2009, is going to be tough out there," Rose told BBC Radio 4.

Finance Director Ian Dyson told CNBC Europe that a rate cut would "clearly ... be very helpful for the UK economy."

General merchandise fell 3.2 percent and Food fell 1.5 percent, Marks & Spencer said in a statement.

Citigroup cut its forecasts for M&S last week on expectations of weak trading and predicted no growth on an overall like-for-like basis. Credit Suisse also cut its forecasts and predicted zero growth.

GFT Global Markets spreadbetters predicted Marks & Spencer shares would open down as much as 5 percent.

At Tuesday's close, Marks & Spencer shares had lost more than 10 percent of their value in the past five days with investors exiting the retail sector due to signs a cooling economy is affecting shopper spending. The DJ Stoxx index of European retailers has shed 9 percent in that period.

British retail sales grew at their slowest pace since March 2006 in December, making it the worst Christmas for retailers in three years, the British Retail Consortium said on Tuesday.

Clothing retailer Next warned last week said it was "extremely cautious" about the outlook for 2008. Shares in DSG International, Europe's largest electrical goods retailer, plunged nearly 30 percent last Thursday after a profit warning.