UK retail sales have plunged this month at the fastest annual rate since comparable records began in 1983.

UK retail sales have plunged this month at the fastest annual rate since comparable records began in 1983, the Confederation of British Industry said yesterday as Monetary Policy Committee member David Blanchflower warned of two million unemployed by Christmas.

The CBI issued its extremely gloomy survey of high street conditions, which also showed retailers fear a similar year-on-year drop in sales volumes next month, as building society Nationwide reported that the average UK house price fell by 1.9% during August alone to £164,654. This tenth consecutive monthly fall in UK house prices increased the annual rate of decline from 8.1% in July to 10.5% - the first double-digit percentage fall since the recessionary days of the final quarter of 1990.

David Blanchflower, who has been the lone voice on the Bank of England's Monetary Policy Committee crying out for a cut in benchmark UK interest rates in recent months, yesterday called for urgent action on borrowing costs as economic conditions deteriorate fast.

Labour market expert Blanchflower, a part-time member of the Monetary Policy Committee, warned that two million people in the UK might be out of work by Christmas and hammered home his view that a "substantial" cut in interest rates was needed urgently to stop the economy heading into a deep and prolonged recession.

His prediction implies a 330,000 leap by Christmas from the 1.67 million number of unemployed, on the International Labour Organisation measure, recorded in the most recent data covering the three months to June.

Blanchflower, warning against "complacency" as the UK economy in his view enters recession, told news agency Reuters yesterday: "I expect to see further rapid jumps (in unemployment) between now and the end of the year, particularly because firms have stopped hiring. School-leavers are coming on to the jobs market and there are no jobs for them.

"We're going to see a big growth in unemployment and expect to see numbers (increases) bigger than 60,000-a-month between now and Christmas. I am expecting to see a number of something like two million (for ILO unemployment) by the end of the year. Job losses will continue, but that's why we need to act."

Blanchflower, apparently signalling he will at next week's MPC meeting vote for a cut in interest rates greater than the quarter-point reduction for which he has pushed unsuccessfully in recent months, said the UK needed to "see a substantial fall and probably quite quickly".

He made it plain that he felt a great burden of responsibility in his rate-setting role.

Blanchflower said: "I feel a weight on my shoulders. I feel that things I have been fearful about have come to pass and I have actually been pretty accurate in what's coming and I have failed to convince the others (on the MPC) of what is appropriate.

"People need to understand that sometimes you will have to focus on the timing of issues...I think people have become complacent and they have not understood what would happen if an economy starts to slow fast, if firms start to close."

He added: "People have to respond to the fact that we are in a recession, and the danger is that we will be in a very serious and long-lasting recession unless we do something. This is a call to action. I certainly think we are in negative growth now and I expect several further quarters (of falling output)."

Blanchflower also declared his forecast of a 30% fall in UK house prices "might even now be optimistic".

In yesterday's latest monthly distributive trades survey from the CBI, 60% of retailers reported that sales volumes in the first half of August were lower than in the same period of last year. Only 13% experienced a rise and the rounded, net 46% reporting a year-on-year fall was the worst outturn since the survey began in 1983.

The CBI noted the impact of "a wet August and disappointing summer sales". Retailers, according to the CBI survey, expect grim trading conditions to continue into September. A net 42% of retailers predict a year-on-year fall in sales volumes next month.

The CBI survey pointed to particularly grim times for retailers of durable household goods, and furniture and carpets. The footwear and leather sector was also very weak, and specialist food stores were among the retailers suffering big drops in sales. Only the mainstream grocery sector reported a year-on-year rise in sales volumes in the first half of August.

Andy Clarke, chairman of the CBI distributive trades panel and retail director of supermarket chain Asda, said: "This has been a summer that many retailers would rather forget.

"The downturn in the housing market is continuing to depress sales for those shops selling big-ticket items.

"This month's report also highlights that, as disposable incomes tighten, food retailers fare better than the rest of the market."

Private sector researcher GfK NOP's latest monthly survey of consumer confidence, published today, shows that sentiment remains extremely weak, although it rose very marginally between July and Augus