Months of sliding sales on the high street were predicted by City economists yesterday after much worse than expected retail figures for last month. They showed that department stores led the sharpest drop in overall sales volumes since the start of last year.

In a dire outcome to the crucial Christmas trading season that analysts said probably signalled the start of a sustained consumer downturn, sales volumes in December tumbled 0.4 per cent, confounding the City’s predictions that retailers would eke out a meagre 0.2 per cent rise.

Annual retail sales growth fell to 2.7 per cent – the weakest performance for 15 months and sharply lower than November’s downwardly revised but still strong 4.7 per cent figure.

The drop in sales came despite heavy discounting as retailers scrambled to bolster flagging festive trading with price cuts. The value of sales at the tills last month fell even more sharply than volumes, dropping by 0.6 per cent. Year-on-year prices across the high street were down by 1.2 per cent – the sharpest annual decline since September.

“This is probably the start rather than the end of a sizeable retail slow-down,” Michael Saunders, of Citigroup, said. Vicky Redwood, of Capital Economics, added: “We don’t think things are getting any better from here. House prices are falling, so are equity prices, utility prices are rising, [consumer] confidence is at a 12-year low . . . need we go on?”

The bleak result for December sales was driven by a grim showing by department stores and other retailers in the official “nonspecialised stores” category”. Sales in this sector plunged 4.3 per cent, in the largest slump it has suffered for 13 years.

Only food stores showed any improvement in December, with sales up by just 0.1 per cent. At nonfood stores, sales sank by a hefty 0.9 per cent.

The figures piled pressure on the Bank of England to cut interest rates again to bolster faltering consumer demand and improve prospects for a flagging economy.

The Bank’s Monetary Policy Committee is being hampered in its ability to react to deteriorating conditions by persistent inflationary pressures, but the MPC’s hawks may take some comfort from the scale of the discounting shown in yesterday’s official figures, which emphasised again the intensity of high street competition.

The weakening in consumer demand was underlined by the official data for three-monthly growth in sales volumes from October to December, which are seen as a better guide to underlying trends.

These rose by just 0.4 per cent in the latest period, compared with 1 per cent growth in the three months to November, the slowest growth since March last year.

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