A bigger-than-expected cut in UK interest rates should help to stabilise consumer spending, but the head of department stores chain John Lewis still expects trading in the run-up to Christmas to be "extremely difficult".
Andy Street, managing director of John Lewis department stores, said in an interview that a surprise 150-basis-point cut in interest rates should help the retail industry to recover from a dire October, when turmoil in financial markets hammered consumer confidence.
"What we need to see above all else now is a return to stability so people can plan with confidence. This interest rate cut, one would think, would be part of that," he said.
A deteriorating economy, however, was likely to keep trading subdued into 2009, he added.
"Unemployment is clearly rising and total growth in the economy is clearly now falling. Those things will work in the opposite directions to what I believe is already an improving sentiment from where we were a couple of weeks ago."
Mr Street said he expected like-for-like sales at John Lewis department stores to fall about five per cent in the run-up to Christmas - broadly the same as in the third quarter ending October 25.
"I'm expecting the beginning of next year to be weak, particularly in the big ticket areas," he said.
"What we must hope is that this (the interest rate cut) will quicken the recovery in those areas. But that relies on the lending market beginning to free-up, the mortgage market operating properly through these reductions, and the housing market bottoming-out and the beginning of transactions again."
In its first half, John Lewis invested £3.5 million in reduced prices to maintain its "never knowingly undersold" commitment.
The retailer was maintaining this investment "broadly at a similar pace" in the second half, said Mr Street.
"I'm absolutely sure this is one reason why we are continuing to win market share, particularly in the most price sensitive areas like electricals."
He said John Lewis was also winning share in clothing and "holding our own" in homewares.
The employee-owned group as a whole, which includes upmarket grocery chain Waitrose, was unlikely to grow profits for the full financial year, said Mr Street.
"It's still all to play for ... the next 10 weeks are when we make or break our results. But given the prediction... on sales it would be unlikely that that's going to result in anything other than a profit decline," he said.
Last Thursday, John Lewis announced plans for a £40 million investment in its first store outside the UK, in Dublin, Ireland.
Mr Street said John Lewis, which currently trades from 27 UK department stores, was "utterly committed" to a plan to double the size of its business over the next 10 years but the pipeline of stores could be delayed if developers cannot secure funding for new shopping centres. New stores in Cardiff and Stratford will definitely open in 2009 and by 2012 respectively.
"The other projects we've announced will definitely all happen, but it's just a question of the delay that we may have... Only three projects are formerly in delay - Oxford, Sheffield and Portsmouth," added Street.