And according to a report by the British Retail Consortium, like-for-like August retail sales on high streets were 1 percent lower on the year, compared with a 0.9 percent annual decline in July.

The gloomy data will set the scene for Chancellor Alistair Darling, who is due to speak on Tuesday to already angry trade unions at their annual conference in Brighton.

Darling is expected to tell unions -- who are threatening strike action over what they see as Prime Minister Gordon Brown’s over-tight pay policy -- that he is not prepared to take "unnecessary risks with economic stability", a signal that public sector wage rises will continue to be kept tight.

CONSUMERS COWED

Howard Archer, chief UK and European economist at Global Insight in London said it was not surprising consumers were curbing their shopping habits.

"Consumers are being hit by a myriad of factors, notably muted disposable income growth, a serious squeeze on purchasing power coming from sharply rising utility bills and elevated food prices, tight credit conditions, higher mortgage repayments ... sharply falling house prices, higher debt levels and increasingly rising unemployment," he said.

"We expect to see a deepening of the current growing trend of consumers looking to economise."

Faced with a global credit crunch, mortgage lenders have tightened the terms on which they make new loans, exacerbating a sharp fall in house prices and causing transactions to dry up.

The BRC sales data showed takings by furniture and homeware retailers were well down on a year earlier as the housing market slump is hitting this area hard.

A recruitment survey by Manpower showed that in the fourth quarter, its seasonally-adjusted employment outlook balance fell to zero, five percentage points lower than in the third quarter and the weakest since the first three months of 1994.

Stripping out seasonal adjustments, the balance was -1, the weakest reading in a decade.

Sectors most exposed to the credit crunch -- construction, High Street retailers and finance and business services -- were the hardest hit.

The Manpower survey chimes with official figures showing the labour market has turned decisively as the economy stood still in the second quarter. The number of people out of work and claiming benefits rose in July by its largest amount since 1992 and has climbed for six consecutive months.

"In the coming months we will continue to see employers making do with the people they have, finding ways to contain costs and being very cautious about hiring decisions," said Mark Cahill, managing director of Manpower UK.

(Additional reporting by Matt Falloon, writing by Kate Kelland. Editing by Mike Peacock)