Food retailers endure biggest slump since records began

Food retailers suffered their worst trading for nearly a quarter of a century in June but the launch of early summer discounting across the high street helped the retail sector as a whole bounce back to register growth of 0.7 per cent.

The dire food figures confirm what analysts and grocery chief executives have been saying since the start of this year: that the squeeze on consumer spending – partly driven by sky-high petrol prices – has resulted in the toughest trading conditions for at least 30 years.

The Office for National Statistics said the volume of sales at food shops fell by 0.2 per cent between May and June and by a whopping 4.2 per cent on the same month in 2010, which was "the largest fall on record since the [monthly] series began in 1988". Within the food figures, the impact of price inflation – estimated by ONS at 5.8 per cent in June – is clear. While volumes were down sharply in June, sales by value rose by 1.3 per cent over the year.

Rob Harbron, an economist at the Centre for Economics and Business Research, said: "Food stores were again hit hard and provided the largest downward pressure to growth."

Overall, however, a frenzy of discounting helped the wider retail sector to grow sales volumes by 0.7 per cent in June on the previous month, compared with a City forecast of a 0.6 per cent rise. While sales volumes bounced back from a monthly fall of 1.3 per cent in May, the picture remains of anaemic trading and retailers battling for every penny of consumer spend.

All general merchandise sub-sectors grew sales volumes last month, suggesting that the widespread discounting drove money through the tills, although its impact on profit margins is unlikely to be pretty. Of these categories, household good stores were the top performer, delivering sales volumes up by 2.6 per cent between May and June, with non-specialised stores posting growth of 1.5 per cent.

Mark Hudson, the retail and consumer leader at the accountants PricewaterhouseCoopers, said: "The ONS figures out today show that despite a small recovery in June, the retail market remains flat and subdued, suppressed by consumers reining in their spending. They are offsetting price inflation by buying less and shopping smarter – using the internet more to research prices, using promotions and waiting for sales."

The pressure the internet is putting on high street chains without a transactional website was laid bare by non-store retailers growing sales volumes by 24.4 per cent in June on last year – the highest ever recorded by ONS.

Mr Hudson said: "The slight recovery in June seems to be promotion driven. Lower early-season volumes meant retailers went on sale earlier than usual, and they are staying on sale."