Britain’s biggest retailers will ring the opening bell on a brutal pre-Christmas price war today as they prepare to slug it out for the shrinking consumer purse.

Marks & Spencer is holding a 20 per cent off sale, with some stores staying open until midnight tonight. Sir Philip Green’s Arcadia Group hit back with a 20 per cent-off campaign and Debenhams will go on the offensive with a three-day “spectacular” sell-off.

Analysts said that the price cuts could lead to a vicious circle of margins eroding and sales declining as shoppers delay their Christmas purchases in the hope of last-minute discounts.

The moves, viewed by the market as panic measures, came on another bleak day for the British economy in which banking heavyweights sparked another 200-point slide in the FTSE 100 and it emerged that the Bank of England had considered cutting rates by more than two percentage points but backed off because it feared the impact of such a cut on the pound.

The anxiety among retailers was highlighted when the shares of DSG International, the owner of Currys and PC World, plunged 31 per cent to a record low of 11p after one of its joint house brokers said that it might not survive the recession intact.

M&S’s surprise move, which was not confirmed until yesterday, was interpreted as a desperate attempt to clear stock after several weeks of poor sales. Mild weather has also depressed sales of full-price winter coats and knitwear. An M&S spokeswoman said: “It’s a volatile trading environment. We want to be competing as hard as we can for our share of the spend.” She added that the major supermar-kets had already heavily discounted nonfood items.

Sir Philip’s Arcadia Group announced sales at Dorothy Perkins, Wallis, Evans and Burtons yesterday. It is these chains, catering for older customers, that Sir Philip has said are finding trading the most difficult. He insisted that promotional activity was at the same level as last year. However, he added: “Every retailer out there is trying to manage their store, their business, according to the market, which is the toughest we’ve ever seen. You can’t rule out doing whatever you have to do to get your business in line.”

On Monday, Wm Morrison introduced aggressive promotions on foods, including buy-one-get-two-free offers. J Sainsbury and Tesco are cutting prices of Christmas gifts and clothes.

Nick Bubb, a retail analyst at Pali International, said that retailers “breaking ranks” would lead to a Christmas among the worst in living memory. “The sales reduce people’s willingness to pay the full price for goods. You run the risk of a double whammy of falling sales and falling margins.”

He added: “All eyes are on what the Government may be able to do about it on Monday [at the PreBudget Report]. The interest rate cut had no effect, even tax cuts might not have any effect on a consumer who is really frightened about unemployment.”

More than a third of consumers have cut their monthly spending by an average of £160, totalling £2.7 billion a month, according to a survey by the Post Office. Official figures released today are expected to show a further decline in retail spending.

Meanwhile, the board of Woolworths, the struggling retailer, moved to allay shareholders’ concerns about a proposed deal to sell its 840 stores for £1 to Hilco, the distressed fund.

Sources said that leading investors including Ardeshir Naghshineh, the Iranian property magnate and the retailer’s largest shareholder with a 10 per cent stake, was considering a bid for the whole of Woolworths and had asked the retailer’s management for information about the Hilco deal. Mr Nagnshineh did not return calls and Woolworths declined to comment.

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