If it's bad for Marks & Spencer, then Heaven help the rest of us

The impact of the credit crunch on the lives and spending patterns of ordinary Britons has now hit home with a vengeance.

Marks & Spencer has sneezed loudly in public and we now know that the whole country is heading for a nasty cold.

The admission by its all-powerful boss Sir Stuart Rose of the devastating impact of the credit squeeze on his business came as a bolt from the blue for the stock market, and sent its shares plummeting to levels not seen in seven years.

Suddenly, the miracle turnaround at M&S, which saw its profits restored to £1billion last year, looks extraordinarily shallow. 

With shoppers looking for cheaper choices for food and clothing as prices and mortgage interest payments soar, some of the more gloomy analysts believe that M&S earnings could halve over the next two years.

The company's fortunes offer a grim insight into the pressure on the incomes of consumers as ten years of unprecedented growth comes to an end.

Until recently the 'credit crunch' may for some have seemed a remote concept, confined to the City and global financial markets. Now it is hitting consumers with ferocity.

One of Britain's biggest home builders, Taylor Wimpey, has owned up to a financial meltdown only to discover that the banks, themselves hard-pressed because of their foolish lending practices in the past, are no longer rushing to help.

People walked by a branch of Mark & Spencer in London yesterday as shared dropped for the store

This time last year Taylor Wimpey was comfortably knocking out 370 new homes a week.

British Prime Minister Gordon Brown is under more pressure with talks of a recession

It now admits that this sales figure has halved, leaving it with vast unsold stocks and heavy debts, with banks likely to be demanding repayment by the year end.

The difficulties of both M&S and Taylor Wimpey are symptomatic of a far broader malaise hitting national output. 

Manufacturing, for example, which was holding the economy up for much of this year, has now been poleaxed.

The weak (some might say sickly) pound can no longer keep exports strong. Output targets, along with orders and investment, are being slashed and each day there is a steady trickle of job losses.

Tens of thousands of posts may be vanishing in the City of London where all this began, but over the next two years, the Paris-based OECD think-tank forecasts, 100,000 jobs will vanish across Britain.

More worryingly, the respected forecaster Capital Economics has broken away from the conventional view in the City by becoming the first to argue that Britain's downturn could turn into a technical recession - two successive quarters of negative growth.

It believes that there could be a disastrous 35 per cent fall in house prices, placing hundreds of thousands of people in negative equity (where mortgages are higher than the value of their homes) by 2010.

The M&S crisis symbolises the squeeze across the economy.

Rose talks lightly of a 'third dab on the brakes' being applied in the last few weeks of trading.

The truth is that it has been more like an emergency stop. A 5.3 per cent decline in sales over the last 13 weeks is as bad as it becomes for any retailer and much worse than the rest of the sector.

The company is being squeezed from all sides. As the nation's dominant clothing retailer it has so far refused to go into sales mode, like many other high street stores, and see its profit margins cut.

The company claims that it is not 'overstocked' with items that people do not want to buy, as was the case when Rose took the helm in 2004. But even so, goods are clearly not leaving the stores fast enough.

The biggest shock for M&S appears to be in its food department.

The company ploughed a premium path, offering more expensive and higher quality goods than other food retailers such as Waitrose and Sainsbury's.

But the strategy has come rudely unstuck as people's pay packets are stretched.

M&S is not the only retailer reporting difficulties. Major furnishing chains like Carpetright, ScS and Land of Leather are in deep trouble and some may not survive.

Debenhams, a past star of the high street, is burdened with huge debts from its period in private equity ownership.

The banks have their own crisis and are much less prepared to nurse customers through the troubled times than was the case in previous economic downturns.

Labour's economic boom has turned to bust with astonishing rapidity. When an emblematic company like M&S can no longer see light at the end of the tunnel, you instinctively know Britain herself is in terrible trouble.