Aug. 14--Dealers fear that the chances of a morale-boosting cut in UK interest rates this side of Christmas have disappeared.

Bank of England governor Mervyn King's gloomy warning that inflation is still a major menace has increased the likelihood that rates will remain on hold at 5pc this year while the authorities attempt to steer rampant 4pcplus inflation back towards its 2pc target.

King backed that up with a depressing forecast that consumer spending and house prices would weaken further because tighter credit controls were expected to continue.

The Bank's inflation report cast a dark cloud over all interest rate sensitive sectors of the market and they helped drag the Footsie 80.5 points lower to 5454. Wall Street's early 189 point drop on weak US retail sales just rubbed salt in.

Retail sales slumped 0.9pc in July and could fall further this month what with torrential rain forecast for the days ahead.

Marks & Spencer, recently buoyed by charity Wellcome Trust's decision to fork out £100m-plus on a 2.5pc stake, ran into persistent selling and slumped 29 3/4p to 266 1/4p.

Its current offer of a free pair of shoes with any man's suit priced at £199 and over surely must mean the pips must be squeaking.

Rival fashion retailer Next fell 89 1/2p to 990 1/2p, while B&Q do-it-yourself group Kingfisher lost 13.8p to 124.6p. Argos catalogue company Home Retail cheapened 11 3/4p to 256 1/4p.

Pub companies closed as flat as a pint of homemade scrumpy amid growing concerns that a trip down the local rub-a-dub will be a no-goer for many highly-geared families, wrestling with expensive mortgages and higher energy bills.

Enterprise Inns plummeted 43 1/4p to 342 3/4p, while Punch Taverns lost 45p to 323p and Mitchells & Butlers 32 1/4p to 297p. Leisure giant Whitbread declined 102p to 1143p.

Supermarket group J. Sainsbury lost 27 1/2p to 340 1/4p on growing concerns it could lose sales to discounters.

Housebuilders encountered a heavy bout of profit-taking following recent outperformance.

News that the UK's unemployment rose the most in almost 16 years last month and the realisation that mortgage rates will not be coming down much this side of Christmas left big falls.

Bellway, which kicks off the sector's trading statement season today, fell 35 1/2p to 576 1/2p.

Panmure Gordon believes it to be the most financially robust of all the housebuilders so there is no concerns from a financing prospective.

It is also better placed to actively go back into the market and position itself for the future.

Excited this week by fund manager Polaris Capital Management's increased stake of 6.2pc, Barratt Developments retreated 24 1/2p to 135 1/2p.

The market still awaits news of how Taylor Wimpey can restructure its debt and banking covenants without the need to raise additional equity. In the meantime, profit-taking left the close 4 3/4p easier at 53 3/4p.

Former Footsie constituent Persimmon declined 30 1/2p to 358 3/4p. Upmarket estate agency group Savills plummeted 40 1/2p to 211 3/4p.

Properties succumbed to the malaise. Hammerson eased 91 1/2p to 900 1/2p and British Land 68 1/2p to 722p.

Profit-taking in the absence of the rumoured bid from Endemol left broadcaster ITV 5.1p down at 45 1/2p.

Banks were battered after their US counterparts took a pasting overnight after JP Morgan Chase said it has seen more losses in mortgage investments so far in the third quarter than it did in the previous three-month period.

HBOS gave up 24p to 307p, Barclays 27p to 351 1/2p and Royal Bank of Scotland 15 3/4p to 229 3/4p. Lloyds TSB shed 20 1/2p to 308 1/2p.

Russian oil producer Imperial Energy gushed 93p to 1137p as speculation about an imminent bid from China's Sinopec Group intensified.

Better-than-expected full-year results lifted Stagecoach Theatre Arts 5p to 68 1/2p. Broker Hardman says due to the popularity of its part-time performing arts schools, it is more than holding its own in the midst of the current consumer spending squeeze.

Some relief for the investors in biotechnology firm Protherics (up 7p at 38 1/4p), which has been on the slide since April. It confirmed yesterday that it is considering takeover approaches "from a number of parties."

SOFTWARE GROUP MICRO FOCUS stormed 18 1/4p ahead to 286 3/4p after reiterating its target of double-digit organic revenue growth for the year. Panmure Gordon's growth forecast for 2009 is 9.3pc. It believes that cash conversion has been very strong in the first quarter. Meanwhile, rival Numis sees scope for further earnings outperformance at MF in the current year.

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