By Daniel Hunter

UK retail sales values were down 0.3% on a like-for-like basis from January 2011, when sales had risen 2.3%, picking up after December 2010's snow disruption.

On a total basis, sales were up 2.1%, against a 4.2% increase in January 2011. On both measures it was the second-worst January, after January 2010, since the survey began in 1995.

Food sales slowed sharply after their Christmas boost. Non-food also weakened and any gains were largely driven by widespread heavy discounting in clearance sales. For clothing, footwear and homewares, January was worse than December, especially for larger purchases, hit by consumer caution.

Non-food non-store (internet, mail-order and phone) sales growth slowed again after picking up sharply in December. Sales were 11.3% up on a year ago, less than December's 18.5% gain but similar to the 12.3% in January 2011.

"As 2012 gets underway, it's clear people don't feel any better about the immediate future than they did 12 months ago," Stephen Robertson, Director General, British Retail Consortium, said.

"Customers parked their worries in December and spent, encouraged by discounts. Now, in the New Year, reality has bitten again as concerns about jobs, wages and household costs reassert themselves.

"Despite consumer confidence improving in January, actual spending shows households concentrating on paying off debt, saving and battening down for another tough year.

"Food sales grew faster than non-food but the gap was much narrower than in December as people cut back and searched out grocery offers and value lines. Big-ticket goods are still the weakest part of retailing, undermined further by the comparison with last year when beating the VAT rise and promotions linked to it helped sales.

"In 2011 overall like-for-like growth averaged virtually zero and that was with a boost to top line figures from inflation, including the higher VAT rate, which won't continue in 2012. Against that background, Government must hold down the costs it's responsible for."

Helen Dickinson, Head of Retail, KPMG, said the figures were sobering, after a good December.

"After a stronger than expected December, these latest figures are rather sobering," she said.

"The return to negative like-for-like sales reflects the trend seen throughout most of 2011 and is a stark reminder of the challenges facing retailers.

"Both food and non-food had a slow start to the month. In the first week of January customers were still using up stocks of food bought in for Christmas. Non-food didn't benefit from the catch-up shopping effect we saw last year in the aftermath of December 2010's snow disruption. Both categories improved as the month developed.

"But the underlying health of the sector remains a key concern, with margins and profits squeezed by the relentless need to discount to generate demand. Many retailers are rethinking their entire business models in a desperate attempt to adapt to this low growth environment and pricing remains more strategic than ever before."

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