In a bitter blow for hopes of a strong recovery in the UK economy it has been revealed that retail sales in January were the worst for 15 years. While headline sales increased by 1.2% year-on-year, the lowest increase since the survey began in 1995, actual like for like sales were down 0.7%. This compares to a year on year increase of 6% in December and a like-for-like increase of 4.2%. So what is next for the UK economy?

Analysts had expected a 3.3% increase in retail sales in January and a 0.5% increase in like-for-like sales. The British Retail Consortium, the association which produced the survey, is now very concerned about the short-term outlook for the UK retail market with the growing possibility of a double dip recession. It seems as though the combination of extreme winter weather, a rise in VAT and less aggressive discounting by UK retailers came together to give a nightmare scenario for the sector.

As we saw yesterday, with the decline of Ethel Austin, many retailers in the UK are on the verge of collapse with cash flow, debt and profitability causing major problems. When you also add in the fact that UK banks are unwilling to take undue risk in bailing out companies there is the potential for a further decline in the UK retail market which could push the UK economy back towards a double dip recession.

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