Why Marks & Spencer’s results matter

By the end of last year it was already clear that the retail sector wasn't going to be much of a place for your cash this year. But just how bad things were going to get was brought home to me only when I ventured out to the shops just after Christmas.

Given the normal state of Oxford Street in sale season, I thought I wouldn't go on the 26th, 27th or 28th of December. Instead, I went with some trepidation, given that only a few days earlier someone had been stabbed in the melee at the handbag counter in Selfridges on the 29th.

I needn't have worried. The shops were empty. I went into John Lewis (to return something) and found myself to be the only person at the tills. Then I went to Selfridges (to buy something I liked better) and found the place all but deserted.

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"Where are the crowds?" I asked a sales-person. All gone, she said. Apparently the shop was mobbed in the first few days of the sale, but once the excitement of the stabbing was over and all the really heavily discounted bags had been grabbed, the shoppers disappeared. It made for pleasant browsing for me, but I can't imagine it was cause for a restful holiday for the nation's retailers.

That there is no good news around in retail was confirmed by Sir Stuart Rose of Marks & Spencer on Wednesday: there, in the 13 weeks to the end of December, sales fell 2.2% and that's despite the fact they were selling something irresistible (machine washable cashmere) at a discounted price (£49.50). This is a big deal. Why? Because it's clear and final proof that the UK economy is going the same way as the US economy: as Rose puts it: "We are the bellwether. We sell 10% of all clothing in the UK. Take it from us, the economy is slowing down."

It would be nice to think that Britain's decade-long shopathon is finally coming to an end for the simple reason that people have finally noticed that they have all they could possibly need and so there is no point in borrowing money to buy more stuff.

But of course, it is nothing to do with that. Instead, it is all about the credit crunch, which has indisputably now done the thing that everyone said it never would when it kicked off in the summer: it has infected the real economy and made it impossible for people to keep spending.

Tighter lending has kicked off house-price falls across the country and slammed confidence (which has meant transaction levels have collapsed), while banks desperate to protect capital have pushed up the costs of their mortgages, cut the rates they offer to savers and pulled out of the subprime lending markets (both in terms of mortgages and personal loans) in droves.

Worse, the stockmarket has finally noticed the bad news: the FTSE 250 is down 6% so far this year. The success of our economy has been based on three things for the last ten years: people shopping a lot, house prices rising and the City doing really well. Oh dear.