CARPHONE Warehouse said the economic outlook was the toughest it had ever seen, sending its shares plunging by over a quarter and eclipsing news it might split off its telecoms arm.

Europe's biggest mobile phone retailer said: "The next 12 months are likely to represent the most challenging economic climate we have ever operated in."

Carphone finance director Roger Taylor said rising unemployment meant consumers were likely to remain cautious well into next year, despite falling interest rates.

"Coming into the first half of next year, a lot of people are going to see their credit card bills hitting their doorstep in the end of January and early February and I think that's going to add to their woes for a few more months," he said.

Carphone shares have fallen heavily in recent days, after its retail joint venture partner, US group Best Buy, warned last week of `seismic changes' in consumer behaviour, and top handset maker Nokia said the world's mobile phone market would fall next year.

Carphone, which sold a 50 per cent stake in its retail business to Best Buy earlier this year, confirmed months of speculation by saying it would look at splitting off its fixed-line and broadband TalkTalk telecoms business.

Analysts have long argued it should spin off its telecoms arm to focus on the venture with Best Buy.

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