Spending brakes on after one last splurge

Sales in many stores have already started and shoppers are expected to spend more than ever before in the few days after Christmas, when the big chains such as Next start slashing prices.

But analysts reckon the spending splurge will be short-lived, rapidly to be replaced by a major battening-down of hatches as investors fret about falling house prices, increased mortgage payments and tighter conditions imposed on them by their banks and credit-card companies.

Tim Denison, the director of shopping monitor SPSL and a shopping psychologist, said: "We have had 10 or 11 really good years for retailers and the post-Christmas sales have grown and grown and grown.

"This year, we will see people have one final flourish before they really have to tighten their belts."

Retailers are more anxious than they have been for years about the outlook for their businesses as the credit crunch takes hold.

"It will be a big sale, but things will change dramatically early in the New Year after the first two weeks of January," Denison predicted.

The dicey nature of current consumer confidence was highlighted by the weak run-up to Christmas, which resulted in the last-minute rush on Saturday and yesterday.

Martin Davies, analyst at retail consultant Footfall, said: "People woke up on Saturday morning and thought 'we're going to have a good Christmas and worry about the consequences of paying the bills later'. But take my word for it: The underlying issues of the economy - mortgages, house prices, that whole melting pot - will be erupting in people's minds long before the Christmas decorations are put back in the loft."

Many shop chains are already suffering serious financial difficulties even before the expected 2008 downturn.

Dolcis, the shoe shops chain, is said to be in emergency restructuring talks with its advisers, having struggled for the last few years to keep its head above water.

Its former owner Alexon recently warned that its profits were set to disappoint the market, adding to the growing list of chains issuing profit warnings.

French Connection and Moss Bros have both cautioned about the impact of the slowdown, while there has been persistent speculation about the

strength of shops owned by Icelandic retail investor Baugur.

Baugur, which owns stores ranging from Whistles and Coast to House of Fraser and Hamleys, today pledged that it remained committed to the UK High Street despite the value of many its investments here having plummeted.

Chief executive Gunnar Sigurdsson said the rocky market ahead would make it more likely to buy up struggling chains such as Moss Bros.