Retail sales growth in the UK fell back to earth with a bang in January after a bumper Christmas, according to the Confederation for British Industry which warned retailers to expect further difficulties ahead.

Almost a third of the 52 retailers surveyed by the CBI reported a decline in sales volumes in the year to January, compared to only 23 per cent that reported an increase. The balance of -8 was a sharp contrast with December’s +35, and far below the +27 predicted by economists.

Grocery stores were the biggest drivers of the drop, with respondents reporting sales fell at their fastest pace since August 2004. Clothing retailers and department stores, in contrast, were more positive, reporting “continually healthy growth”.

The disappointing data follow similarly bleak official figures released last week. While the CBI reported positive sales growth in December, the Office for National Statistics’ seasonally-adjusted growth figures were far lower than economists had forecast, highlighting worries about the health of the sector as prices begin to rise this year.

Inflation hit its highest level in more than two years in December, and is expected to rise further in the coming months as the costs of higher energy prices and a weaker pound are passed on to consumers.

Anna Leach, CBI head of surveys and economic analysis, said:

Grocers have reported a disappointing start to the year, but other sectors appear to have performed better. This month’s decline was mostly driven by falling food sales and seems set to be short-lived, with retailers expecting sales to return next month.

Headwinds are on the horizon, as past falls in sterling are expected to push up inflation over the course of this year, which will be a real squeeze on household incomes. Retailers will be under the cosh for some time yet.

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