The economic slowdown has ended two years of continuous growth in the grocery sector and retailers expect the Christmas shopping period will be especially slow, the Confederation of British Industry (CBI) has said.

High street sales have been hit more sharply than feared and the retail sector has cut investment plans amid predictions that the business situation will worsen over the next three months.

Responding to the CBI's latest Distributive Trades Survey (DTS), 16 per cent of firms said that sales were higher in the first half of November compared with a year ago, while 62 per cent said they were lower.

This represents a marked -46 per cent on October, and another strong fall in year-on-year sales volumes is expected in December at -40 per cent.

The three-month moving average of sales volumes, which accounts for monthly volatility, remained as weak as in October at -33 per cent.

Retailers' confidence in their sector remained especially weak, crushing investment intentions, where a net 57 per cent of firms plan to cut expenditure, which is the weakest figure since the survey began in 1983.

There was also a sharp decline in sales volumes in the grocery sector, ending two years of continuous growth.

Andy Clarke, chairman of the CBI Distributive Trades Panel and retail director of Asda, said: "Christmas is going to be extremely tough this year, with retailers having to work harder than ever to keep the tills ringing. The added pressure of changing millions of prices, to reflect the cut in VAT, will be an unwelcome and costly burden.

"Lower petrol prices and recent cuts in interest rates should help put a little more into people's pockets, as will the VAT cut, but only if retailers pass it on before Christmas," he said.

The DTS covers 20,000 outlets of firms responsible for 40 per cent of employment in retailing. It includes measures of sales activity across the distributive trades and was first introduced in 1983.