Retailers are ramping up promotions to try to persuade shoppers to spend more after July’s wet weather hit business.
Sales of clothing and shoes declined last month, which is usually a busy month for fashion, as shoppers held back from updating their summer wardrobes.
But a report on retail sales said there was a “big rise” in offers designed to persuade shoppers back.
The higher cost of living and rising interest rates are squeezing spending.
“We are starting to see a big rise in the number of promotions that retailers are putting in place in order to get shoppers through the door, as they battle to keep market share,” said Paul Martin, UK head of retail at consultancy firm KPMG.
“Price conscious consumers are shopping more carefully, more aware of where bargains can be found and what they are getting for their money.”
According to the British Retail Consortium (BRC) and KPMG, spending in July was dented by the damp weather, which “did no favours” to sales of clothing, and other seasonal goods.
The value of retail sales was 1.5% higher in July compared to a year ago, but volumes were lower once inflation, which is currently 7.9%, was taken into account.
“Both consumers and retailers are finding that they are having to get used to doing more with less as conditions remain incredibly challenging,” Mr Martin added.
It was not just High Streets impacted last month, online sales also continued to slide, falling nearly 7% year-on-year, the report said.
However, sales of furniture, health and beauty goods held up.
“While consumer confidence is generally improving, it remains below longer-term levels,” said Helen Dickinson, boss of the BRC, which represents some 5,000 businesses.
Inflation – the rate at which prices rise – fell to 7.9% in June, which is its lowest level in more than a year but still high by historical standards.
This is due to energy bills and food prices starting to fall, official figures from the Office for National Statistics (ONS) suggest.
The BRC-KPMG retail statistics are not as extensive as the ONS figures. However, reports of larger-than-usual summer discounts still suggest there could be an impact on inflation when the July data is released next week.
Economists are predicting inflation to drop to 6.8% due to energy prices falling.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the 17% fall in households’ energy bills will have “boosted disposable incomes”, adding it appeared the cost of goods was now rising less quickly than wages.
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Last week, the Bank of England put up interest rates for the 14th time in a row in a bid to make borrowing more expensive, dampen demand and therefore slow price rises.
This is driving up mortgage rates, something Ms Dickinson said was squeezing household budgets.
Economist Michael Hewson from CMC Markets said the slowdown in the pace of consumer spending was “not surprising”, considering interest rate rises.
“This is what rate hikes are designed to do,” he said.
But Mr Hewson said there was a “looming cliff edge” as there is a lag before the effect of such rises is fully felt in the economy.
He said consumers were now saving more to mitigate a sharp rise in mortgage costs as their fixed rate deals come up for renewal.
New figures from Barclaycard, which monitors about half of credit and debit card spend in Britain, also suggest there has been an overall slowdown in spending.
But there were a few bright spots, with more being spent on takeaways and streaming services as people stayed indoors away from the rain.
