The company said there was a marked difference between sales in the manufacturing regions of the North and Midlands and the rest of the country.

Although announcing half-year profits broadly in line with expectations, the sales warning saw its shares fall almost 5%, or 38 pence, to 777p by 1115 GMT.

The group reported profits before tax and exceptional items of £207m ($347.2m) for the six months to August 29, at the lower end of analysts' expectations but up 4.6% on the 1997 level.

Consumers "uncertain"

The figures included a disappointing 4.3% fall in sales at the group's Beefeater restaurant chain. The company said consumers had cut back on eating out.

Decline in drinking and eating out

"It is clear that the UK consumer is now more uncertain and more cautious in terms of where they spend their money," chief executive David Thomas said.

He explained the North-South spending split as "primarily a matter of consumer confidence and people feeling their jobs are at risk. The regional differences are as a result of a deeper unemployment issue in manufacturing."

Trade "disappointing"

Merrill Lynch analyst Philip Hawkins said: "Underlying trading in pubs and restaurants was disappointing on a like-for-like basis, particularly Beefeater."

Analysts said profit estimates for the full year would be cut by around £10m to about £365m pounds.

The group's restaurant division, which includes French style bistros Cafe Rouge and Cafe Dome, saw profits fall 5% to $30m in the six month period.

Whitbread Inns, which includes Hogshead pubs and pub restaurant chain Brewers Fayre, saw sales fall 3.4% compared to last year.

New hotel focus

The company said it would change focus in the wake of the down turn and instead of investing in new pubs and restaurants would concentrate on expanding its Travel Inn budget hotels and David Lloyd leisure centres.

The company plans to spend £300m on Travel Inn over five years to double the number of hotels to 400.

Whitbread reported a 13% rise in profits from its beer division with Stella Artois the best performing brand. The group's Inns division saw profits up 5.7% at £96.2m.