The retreat by consumers from the high street slowed slightly this month, despite prices rising at the fastest pace for 16 years, a CBI survey found yesterday.

Yet it came as poll of British consumers, published by GfK NOP, showed that confidence is continuing to plummet. The poll’s headline index of sentiment fell a further five points to minus 29, its worst since the depths of the last recession in November 1990. At the same time, consumers’ willingness to make major purchases fell to its lowest on record.

The CBI said that sales fell in May for the second consecutive month, but the fall was less sharp than expected. They are forecast to rise next month.

The figures spell the latest blow to fast-fading hopes of any further cuts in interest rates over the summer. Despite the modest improvement in trading, the CBI gave a renewed warning that prospects for the high street look grime as a growing financial squeeze on households hits consumers’ confidence and their readiness to spend.

Even in the face of slumping confidence, the CBI’s indications of a modest revival in sales from April, coupled with the latest evidence that retailers are still driving up prices, stoking inflation, reinforced the City’s expectations that interest rates will stay on hold next week, and for months to come.

The Bank of England Monetary Policy Committee (MPC) will be alarmed by the latest signs of mounting price pressure from the high street. The CBI’s results showed that 56 per cent more retailers said that they raised prices this month than reported cutting them – the highest such proportion since May 1992. A net 52 per cent of retailers said that they would raise prices again in June.

The price pressures come as retailers battle to shore up their margins in the face of soaring costs fuelled by rising import bills triggered by a sharp decline in the pound. The increased competition for trade caused by consumers’ growing reluctance to spend and fading confidence is yet to do much to cap these inflationary trends, the survey suggested.

The CBI’s findings that sales revived a little in the past month, will also add to the MPC’s uncertainty over the true state of high street trading.

Headline CBI data for this month had only 28 per cent of retailers saying that sales had risen compared with a year earlier, while 42 per cent said that they fell. The net balance of minus 14 per cent reporting falling sales marked a pickup from a balance of minus 26 per cent last month. Sales of food, including by the leading super-markets, were strong and clothing sales stabilised after a poor April blamed on bad weather, the CBI said.

A key area of weak trading was for big-ticket items such as furniture and electrical goods, which are closely linked to housing market conditions. As evidence grew that house prices are tumbling – Nationwide Building Society reported yesterday that house prices plunged by 2.5 per cent this month – sales of these products are being hit hard, the CBI found.

Ian McCafferty, the CBI’s chief economic adviser, said that although it was encouraging that retailers expected some recovery in sales in June, the mood remained gloomy overall and conditions were set to stay tough.

A survey from Lloyds TSB found consumers to be increasingly pessimistic over the outlook for employment and their own job security.

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