MARKS & SPENCER will send a shiver down the high street this week when it unveils its worst Christmas trading for two years.

Regarded as a high-street bellwether, it is expected to unveil a fall in like-for-like sales for the first time in nine quarters.

M&S will caution that higher mortgage payments and household bills have combined with nervousness about the economy to dampen confidence and make trading conditions tough.

The plunge at one of Britain’s biggest and best-known retailers will confirm City fears about the extent of the deterioration in market conditions since the start of the credit crunch.

M&S is expected to report a drop in like-for-like sales of about 2% in the third quarter to December 29 when it delivers its trading update on Wednesday.

Analysts at Citigroup have already reduced their forecasts for March 2008 profits from £1.085 billion to £1.05 billion and edged down their third-quarter estimate from 2.2% growth in like-for-like sales to flat sales.

But retail experts believe that trading was so difficult that sales have tipped over into negative territory.

The difficult market conditions will place a big question mark over whether M&S will pay out a staff bonus this year.

Last year, staff shared a record £90m payout after a sharp rise in profits, but City sources speculated that the retailer may now be forced to cut back or scrap the bonus payments. M&S shares closed on Friday at 518p, down 37½p on the week.

The bad news comes just days after rival Next in effect wrote off prospects for growth on the high street in 2008 and warned that it expected a third successive year of negative like-for-like sales.

DSG International, the Currys to PC World retailer, and Land of Leather both issued profit warnings last week as they became the first big scalps of the Christmas spending slowdown.

The influential KPMG/British Retail Consortium Retail Sales Monitor is expected to confirm this week that like-for-like sales in the sector grew at their slowest rate for two years. Food is expected to be the best performer, with women’s fashion and home furnishings both suffering.

Wm Morrison and Tesco are tipped to be among the Christmas winners. But J Sainsbury is forecast to unveil a more modest 3.6% rise in like-for-like sales excluding fuel when it delivers its third-quarter trading update on Thursday.

Many big department-store chains have performed strongly.

John Lewis reported an 18% surge in festive sales last week.

This weekend it emerged that House of Fraser, the Baugur-owned department-store chain, has bucked expectations with a positive 2.4% rise in like-for-like sales for the five weeks to January 3 and a slight improvement in profit margins.

Harrods and Selfridges have also been top performers.

Dreams, the bed specialist, has emerged as another Christmas winner, reporting a 6% rise in like-for-like sales. Mike Clare, the group’s founder, said the company plans to open a record 50 new stores this year – 15 more than previously planned. The company has recently hired KPMG to find a buyer for all or part of the business.

Bids are due in by the end of this month. It is thought that KPMG is hoping to find a buyer prepared to pay between £250m and £300m for the company.

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