Retail sales rose only 0.3 per cent in December on a like-for-like basis, compared with the previous year when sales were up 2.5 per cent, marking the worst December performance in three years.

The figures, from the British Retail Consortium (BRC), show December’s growth was the weakest since the decline in March 2006, when sales were hit by Easter falling in April that year.

The three-month trend rate of growth fell to 0.8 per cent in December from 1.8 per cent in November on a like-for-like basis and dropped to 2.8 per cent from 3.8 per cent for total sales, reflecting the continuing growth of retail space.

BRC director-general Kevin Hawkins said: “This result is somewhat worse than we expected and points to a very challenging first half for 2008. Given that the full effects of the Bank’s previous increases in interest rates have yet to be felt by many households, retailers and manufacturers alike need a rate cut now – preferably a full half-point.”

Clothing sales for December were below the level of a year earlier for the third consecutive month. The decline was slightly smaller than in November and October, but much of the improvement was driven by aggressive discounting and Sales. Footwear was down on the previous year and discount-driven in many cases.

Department stores produced mixed results according to the timings of their Sales, while like-for-like sales of homewares fell further. Sales of toiletries and cosmetics slowed sharply to its weakest since March.

KPMG head of retail Helen Dickinson said: “This sets the scene for the year ahead and like-for-like sales look set to move into negative territory, as they did in 2005. This does not bode well for retailers struggling with rises in their cost bases of about 4 per cent.”