Retailers on both sides of the Atlantic issued dire forecasts for the high street yesterday as the turmoil in financial markets continues to hurt the wider economy and put the brakes on consumer spending.

A quarter-point cut in interest rates failed to lift spirits in Britain as DSG, the owner of Currys and PC World, issued its second profit warning in four months, as cash-strapped consumers shunned big-ticket items and went bargain-hunting instead.

Sir Philip Green, the retail tycoon, added to the gloom. The entrepreneur told The Times at a retail conference in Barcelona that he was upbeat about the prospects for his Topshop chain but gave warning that the rest of the market was in for a rough ride. He said: “It is tough. The market is probably as tough as I've seen it - very challenging.”

The picture was no brighter in America. Gap, the US clothing retailer, said that its same-store sales fell 18 per cent last month, more than double the drop that analysts had expected. Its peers, including Abercrombie & Fitch, American Eagle and Wet Seal, recorded declines of between 10 per cent and 12 per cent.

Analysts said that retailers in the UK and the US had been hit by the double whammy of an early Easter and poor weather, even before factoring in the slowdown in consumer spending on the back of the credit crisis, rising inflation and falling house prices.

Clive Black, a Shore Capital analyst, said: “The next few months are going to be tremendously tough. Living standards for whole swaths of Britons are deteriorating as they find that the growth in their income does not match the growth in living costs, such as housing, council tax, petrol, energy bills and transport.

“Many people have just got a lot less money and less capacity to borrow on credit cards or loans. The amount they have to spend on leisure is under pressure. We think there will be a drop in discretionary spend on big-ticket items like furniture and cars.”

DSG's profit warning was the latest in a string of dire forecasts from British retailers. Marks & Spencer got the ball rolling at Christmas when it stunned the market with its disclosure that profits would fall short of expectations. Since then a myriad of high street names, including John Lewis, Debenhams, Next and Land of Leather, have added to the misery. Retail stocks have lost about 50per cent of their value since this time last year and the situation looks set to worsen.

Most retailers have written off 2008 and are factoring in a return to growth only in the second half of next year. One senior banker said that with one or two notable exceptions - Halfords, the British cycles and car parts specialist, and N Brown, the catalogue retailer that caters to larger women - profits across the sector “would go backwards”. John Browett, the DSG chief executive, said that the company expected full-year underlying pre-tax profits to be between £200 million and £210 million. Its shares closed down 8.4 per cent at 59.5p as analysts said that the retailer's rapidly shrinking profitability, combined with overstretched finances, made a huge cut in the dividend almost certain.

Mr Browett, who sounded the alarm over profits in January after a disastrous Christmas, said that demand for electricals that had not been discounted was “lower than expected, with a negative impact on margins”.

Additional reporting: Steve Hawkes, Robert Lindsay

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