Figures showing the first drop in retail sales for six months yesterday cast a shadow over the high street as it approaches the crucial Christmas shopping season.

The 0.1 per cent drop in October sales was worse than expected and led some analysts to predict that the Bank of England might start cutting interest rates as soon as next month.

Mild weather was blamed for a 0.5 per cent fall in clothing and foot-wear sales, while household goods were flat and the volume of goods leaving food stores dropped by 0.4 per cent as retailers struggled with higher costs.

September’s sales growth figure was also revised down, meaning that over the year to October, sales volumes were up by 4.4 per cent, down sharply from a 6 per cent growth rate seen the previous month. The value of sales was flat as price deflation eased off slightly.

WH Smith became the latest to worry about consumer sentiment yesterday, saying it remained “cautious” about Christmas and the new year.

In an interim trading update, the group added that like-for-like sales across its high-street stores were down 2 per cent in the past ten weeks. Shares in the group fell by 1.4 per cent.

The tough conditions on the high street shown in the Office for National Statistics data are the first clear indication of the consumer slowdown that the Bank of England needs to keep inflation under control.

But after the summer’s financial turmoil, the Bank indicated on Wednesday it would need to cut interest rates twice by next summer to prevent an economic slowdown becoming a rout.

Alan Castle, of Lehman Brothers, said: “Combined with the extremely dovish tone in yesterday’s Inflation Report, we now judge that a majority of MPC members will vote for an immediate 25 basis point rate cut at the December meeting.” Lisa Dillon, director of retail at Ernst & Young, said the next few months would be a game of survival of the fittest,with DIY, furnishings and electrical equipment stores facing hard times.

“We expect to see further profit warnings as belts will be tightened in earnest in the new year,” she said.

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