A slump in underlying sales of 9 per cent is painful for any retailer, even one like Next, which has become accustomed to its new stores cannibalising the customers of existing ones. The sunshine has warmed up high street demand in recent days, but the story is still pretty grim. Free-spending shoppers are in short supply.

No wonder retailers - along with estate agents and housebuilders - have been in the vanguard of those clamouring for interest-rate cuts and were among those most disappointed when the Bank of England yesterday decided to hold the line at 5 per cent for at least another month.

The three quarter-point cuts since last December are not nearly enough to offset the new abhorrence of extending credit by mortgage lenders. Existing borrowers on tracker or variable rates are enjoying some of the benefits of base-rate reductions, but new borrowers and the 1.5million people coming to the end of fixed-rate deals this year emphatically are not.

Alliance & Leicester demonstrated yesterday how egregious the rate rises can be. It is now charging almost two and a half percentage points above base rate for a two-year fixed-rate mortgage. And this in a climate in which the base rate is expected to come down.

Three-month sterling Libor has been falling steadily for the past few weeks, suggesting that credit conditions are easing for Britain's banks and building societies. But although the serious scare is now over, many banks are still in no mood to lend except to customers willing to, or with no choice but to, accept the most onerous terms.

Until house prices stop falling, the worst of the mortgage drought is likely to persist. And while mortgages, especially for first-time buyers, are being so rationed, house prices may continue to fall. It's the most vicious of circles. The Building Societies Association is now talking about two years of this pain.

However, in Next's bleak figures yesterday lies the explanation for the Bank's reluctance to loosen policy too fast. After ten years of flat or falling clothing prices, the golden age is drawing to a close. Next reckons that prices may have to rise by 5 per cent next year as the Chinese and other low-cost suppliers turn the screw. Inflation, already rampant in food and energy prices, is set to return to the rag trade.

So long as wages don't start picking up in response, the Bank will be able to dribble out rate cuts over the next year. But they won't be sufficient to save many individuals and businesses from a nasty chill.

patrick.hosking@thetimes.co.uk

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