Like-for-like retail sales grew 0.3% in December - the slowest rate of growth for three years according to the British Retail Consortium.
Total retail sales were up 2.3% during the crucial Christmas trading month but it was the worst December performance since 2004 and clothing and footwear sales were down for the third consecutive month and below their last year's levels.
The BRC said that December's decline in clothing sales was slower than the decline reported in October and November but that the fall off had been countered by dramatic discounting and special promotions in the run up to Christmas. Womenswear was the worst performing category and the designer and value sectors fared better than the middle-market.
Footwear sales in December were also down on 2006 and even heavy markdowns failed to tempt shoppers in some cases. The most popular styles were ankle boots and Uggs or Ugg-style boots.
Even the department stores, which appear to have fared better than other retailers over Christmas, saw poor clothing and footwear sales, but designerwear continued to outperform helping to boost department store numbers.
BRC director general Kevin Hawkins said: "The 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."