Richard Handover, the chief executive, said: "Take the VAT out of that and you're selling at a loss."Analysts were concerned about a 3 per cent fall in book sales. This was largely in fiction where Waterstone's ran strong Christmas promotions.Analysts were gloomy with ABN Amro, Smith's house broker, cutting its current year profit forecast from £128m to £120m.Nick Bubb, retail analyst at Evolution Beeson Gregory, said: "It's d? vu Every time Smith's reports, there are downgrades. They clearly got the trade-off (between sales and margins) wrong in UK retail with losses of market share in key areas."But Mr Handover expressed cautious optimism in Smiths. "The principle we adopted was to not chase sales at the expense of margin.

We may have over-compensated a little but the problem is tactical not fundamental." On the outlook for consumer spending, he said: "We are managing the business in anticipation of a continuing difficult and uncertain environment.". Lloyds TSB, one of Britain's largest banks, yesterday intensified pressure on rivals by launching a market-beating interest rate on current accounts. Those who pay in £1,000 a month will receive 2.53 per cent.After registering, customers can then carry out transactions in branches and over the phone. They will also be in line for a reduction in their agreed overdraft rate.

The 32-fold increase in credit interest, predicted by brokers to cost Lloyds in the "low tens of millions", might force other high street banks to follow suit. At the moment most only pay customers 0.1 per cent in credit interest.The paltry amount has angered consumer groups. Lloyds, Barclays, HSBC and Royal Bank of Scotland, which includes NatWest, control 75 per cent of the market. HBOS, the Halifax and Bank of Scotland group, upped the ante last year by introducing a current account that pays 3 per cent.Eric Daniels, the head of retail banking and Lloyds' chief executive-designate, said: "We believe this provides a compelling reason for customers to do business with us. This current account provides the best credit interest on the high street.". Britannic, the embattled life assurer, was forced to reassure the markets yesterday that it could withstand further significant falls in the stock market without becoming insolvent. But the company's statement that it could maintain its solvency margins even if the FTSE 100 fell to "appreciably" lower levels failed to stem the slide in its share price.Britannic shares ended 12 per cent lower at 101p, having fallen by as much as 29 per cent before the statement.