Retail sales dropped last month, according to a major trade association, as consumers reined in spending and decided to pay off debt and save instead.

Retail sales values were down 0.3 per cent on a like-for-like basis in January, the British Retail Consortium (BRC) said, the second worst January since the survey started 17 years ago. The figure compared to last January when sales had risen 2.3 per cent.

The BRC, which represents 60 per cent of retailers, said the decline was driven by a sharp slowdown in food sales, following the Christmas boost in December, but non-food sales were weak as well.

Stephen Robertson, BRC director general, 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.”

Simon Purkess, head of retail at KPMG in the Midlands, said: “These figures confirm the tough environment in which retailers have to operate. After a surprisingly good December, these figures are now back in line with the pattern borne out throughout most of 2011, and in line with what we would expect to see.

“There is no doubt that 2012 is going to be a tough year as the pressures in the economy weigh heavy on the consumer purse. However, for those retailers that are able to focus on getting their business model right, with an offering that delivers quality to the consumer, 2013 is likely to be brighter. For now, the business basics of cash and capital management remain paramount in order to weather the current challenging conditions.”

Internet, mail-order and phone sales growth slowed in January after picking up sharply in December. Sales were 11.3 per cent up on a year ago, less than December’s 18.5 per cent gain but similar to the 12.3 per cent in January last year.

Clothing sales slowed sharply to near zero growth after a good December, the BRC said, with womenswear suffering most, while men’s and children’s continued to show year-on-year gains, albeit much smaller than in December.

The association added that any sales were largely discount-driven with a consequent hit on margins as people had waited for clearance sales, especially when buying big-ticket items such as coats and dresses.

The survey echoes that of the CBI’s, which showed retail sales volumes fell in January, after modest growth in December, with a balance of 22 per cent of traders reporting a decrease on a year ago, the lowest level since March 2009.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “It is currently hard to be optimistic over the prospects for consumer spending in the early months of 2012 at least.

“Consumers’ confidence is still very low despite picking up in January, while their purchasing power is still under severe pressure from relatively high inflation, muted wage growth and tight fiscal policy.”