Profit warnings from the retail sector have risen sharply in the last year.

One third of FTSE general retailers have issued warnings in the last 12 months, compared to 24 per cent in the whole of 2006, according to a report by Ernst & Young.

It warns that the retail sector is the one to watch in the final quarter of this year as consumers are expected to remain cautious in the run up to the crucial Christmas period.

Ernst & Young head of corporate restructuring Liz Bingham said: “Retailers will need to develop strategies to cope with a slowdown in consumer spending. An unwavering focus on customer service, tight control of inventory and product availability across all channels, and a focus on margins with a strategic approach to pricing will be crucial to success. Retailers are set to play a very difficult game of ‘discount chicken’ against consumers this winter.”