The credit crunch hit the high street with a vengeance yesterday as shock figures from Marks & Spencer wiped £4 billion off the value of Britain’s leading retailers.

The grim news from Middle Britain’s favourite store marked a new phase in the economic downturn and threatens the high street with its worst slowdown in 20 years. Adding to the gloom, one of the country’s biggest housebuilders revealed that it was teetering on the brink of collapse. Taylor Wimpey’s value more than halved after it failed to secure rescue funding and said it would cut 900 jobs.

The surprise admission from M&S that its sales had fallen by 5 per cent in the past three months fuelled fears that the drop in consumer spending will deepen into a severe slump.

City experts took the news as a sign of the onset of deeper economic woes. Sir Stuart Rose, the M&S chairman, said he had never seen “such a sharp and continuous downturn” in his career. But he predicted worse to come. “Our customers are hurting. Their pockets are being squeezed,” he said.

Times Archive, 1964: Lord Marks and the retail revolution

To the man in the street he will be remembered as the real initiator of high quality, low cost clothes

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He conceded that M&S and other retailers were facing their toughest test since the end of the last recession in the early 1990s as surging food and fuel costs pushed up the cost of living and put families under financial strain.

“People’s purses are being squeezed and they have to make decisions about what they can and cannot do or what they will and will not give up,” Sir Stuart said.

The danger that a house price slump will combine with rapid rises in living costs to undercut consumer spending was emphasised by the plight of Taylor Wimpey. It predicted that the housing downturn could last for 18 months as a key survey showed the toughest conditions in the construction industry for at least 11 years. The seven biggest listed homebuilders had 21 per cent wiped off their value yesterday. They have now lost 87 per cent of their value, £18.4 billion, over the past 18 months. Sums borrowed by homeowners against their properties, meanwhile, fell in the first quarter to a seven-year low of £5 billion.

Charlie Bean, the new Deputy Governor of the Bank of England, told MPs that the squeeze on living standards could last well into 2009. “It is determined by global factors. There is not very much that we can do about that as a nation,” he said.

Worries that the economy could be dragged into a downward spiral were underlined by the Organisation for Economic Cooperation and Development, which forecast 100,000 job losses in Britain in the next two years.

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