Households are gearing up for a bargain basement Christmas as the credit crunch triggers some of the worst conditions on the high street for 35 years.

Despite the opening of a new generation of mammoth shopping centres in Bristol, Liverpool and Leicester experts predicted yesterday that consumers would shun expensive gifts and look for cut-price presents in a return to the austerity of yesteryear.

Retail spending is expected to edge up by just 2 per cent over the festive period and then only because of higher food prices. Helen Dickinson, head of retail at KPMG, the financial services group, said: “Christmas will be about a return to basics.”

Home Retail Group, which owns Argos and Homebase, said it was suffering its toughest trading conditions since 1973, when the first Argos store opened. Terry Duddy, the Home Retail chief executive, said that consumers had been shocked by the turmoil on stock markets and the nation-alisation of some of Britain’s biggest banks. Sales at Argos are almost 9 per cent below those of a year ago.

Mr Duddy said: “People are thinking, ‘What has happened to my disposable income? What is happening to my savings, my pension and what is going to happen to my job?’ It’s no surprise that customers are suffering from a lack of confidence.

“People have started to shop for Christmas, we have sold our first Christmas trees, but they will tend to trade down and look for bargains. Families will make agreements such as, ‘Let’s get each other a card this year, but let’s not bother about a present’.

“We were expecting a downturn, but clearly we were not expecting this. It was always going to be tough, but it’s the toughest we’ve known for 35 years.”

The group’s half-year profits fell by 19 per cent and it was forced to slash the book value of its Homebase DIY chain by more than £540 million because of its poor performance.

High street stores have suffered all year from the sharp drop in consumer confidence and nearly 20 chains have collapsed into administration, including MFI, Rosebys, the home furnishing store, and Dolcis.

Experts claim that retailers are suffering from a perfect storm as consumer spending slows just as a host of lavish shopping centres, equivalent in size to eight Bluewaters, in Kent, come on stream this year and next.

The new centres have been successful, but at the expense of neighbouring towns and villages. The £1.6 billion Westfield White City shopping centre opens in West London on Thursday next week, with luxury spas and valet parking, and is expected to have repercussions on neighbourhood centres such as Kensington High Street.

McDonald’s yesterday showed that it is retailers and restaurants centred on “value” that are gaining most from the downturn. The fast food chain reported a record 100 million transactions in August and a sales increase of more than 10 per cent.

Meanwhile, Hitwise, the internet monitor, said the pressure on consumers’ wallets explained a 22 per cent rise in the number of searches for “secondhand goods” on the web.

Visits to Freecycle, a swap-shop for unwanted goods, have increased by 35 per cent.

Verdict, the retail consultancy, said that consumers would spend an average of £1,363 per head in the final three months of 2008, 2 per cent more than in 2007. The extra money will go on higher prices at the supermarket checkout after soaring food price inflation on items such as bread, pasta and rice. Nearly 40 per cent of all cash spent at Christmas will go on food and drink.

Mark Hudson, the consumer and retail leader at PricewaterhouseCoop-ers, said it was only a matter of time before more high street stores went to the wall.

“Retailers must be banging their fists in frustration on the table,” he said. “People just aren’t spending. They’re cutting down on petrol, they are not going away as much, they’re just not spending.

“They are scared, scared that they’re not going to have a job, or be able to meet the mortgage. Christmas is going to be a game of chicken, with consumers waiting for price cuts to start and retailers waiting until the last minute before they reduce prices. It’s going to be a nailbiter.”

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