The November survey showed underlying sales among retailers were at their lowest levels since April 1995.

The CBI says UK interest rates must fall further

The CBI found that falling sales in November took retailers by surprise and led them drastically to cut their expectations.

It said the survey underlined the need for a further cut in interest rates at the Bank of England's Monetary Policy Committee meeting next week.

Sales volumes were down, with only 36% of shops reporting an increase compared with the same time last year and 45% experiencing a dip.

The survey came as shopping catalogue group Great Universal Stores, which owns Argos, blamed the high street slowdown for a fall in its half-year profits.

Shoe and leather shops, chemists and grocers reported an increase in sales, but furniture and carpet stores, specialist food shops and confectioners reported sharp falls.

Sudhir Junankar, the CBI's associate director of economic analysis, said the results "underlined the message from other data, that demand at home is softening, supporting the need for a 0.5% cut in interest rates next week."

He said retailers expected trade to "perk up" in the run-up to Christmas, but added that "volume growth may only be achieved by eating into margins, as competitive pressures remain strong".

Shops have cut orders from suppliers and said they will reduce them by even more this month.

Service sector woes

The survey came on the day that another poll found the service sector as a whole had contracted for the first time in at least two years.

The November Chartered Institute of Purchasing Managers' report found business activity decreased for the first time since the survey began in July 1996.

Service companies blamed the weakness of the manufacturing sector and the financial turmoil in Asian economies for a fall in business activity.

The CIPS index showed that business activity fell sharply to 49.1 points from 52.1 in October.

All sectors saw a decline except for computing and information technology firms which reported modest growth thanks to the need to prepare firms for the millennium bug and the euro currency.