Retailers suffered their worst sales performance in 11 years last month after war fears wrecked consumer confidence.
The Confederation of British Industry (CBI) said only 28 per cent of firms reported better sales in March than a year earlier, with 41 per cent saying their performance was weaker.
The balance of minus 13 per cent is the first significant fall since January 1999 and the poorest performance since July 1992's return of minus 15 per cent.
Ian McCafferty, the CBI's chief economic adviser, said: "Sales growth has stalled in almost every retail sector.
"These results confirm our fears consumer confidence has been affected by uncertainties surrounding the war in Iraq, the impending tax rises and worries about the housing market."
He said the fall also came despite attempts by retailers to prop up consumer confidence with price cuts.
Mr McCafferty said: "Retailers will hope the Budget does nothing further to keep people away."
The figures from the CBI's monthly distributive trades survey were greeted with surprise as the City had been forecasting a slight improvement in sales volumes following a disappointing performance in February.
Demand weakened across all retail sectors except hardware, china and DIY, where significant sales growth was recorded.
The CBI added the outlook remained grim with expectations among retailers now the weakest for eight years and stocks down to their lowest level in two years as firms cut their orders with suppliers.
HSBC economist John Butler said the prospect of higher National Insurance contributions and Council Tax hikes may also have hit spending plans.
However, he suspected the degree of pessimism may have been overdone, adding: "We would expect the survey to bounce back in the coming months."
The survey, which was carried out between March 4 and 19, covered more than 20,000 outlets of firms responsible for 40 per cent of employment in retailing.
There was one ray of hope for retailers yesterday when figures from retail business information provider FootFall showed the number of shoppers last week rose for the first time in six weeks.
According to the FootFall Index, the number of shoppers was up 8.7 per cent compared to the previous week, although the year-on-year figure was still down 1.3 per cent.
FootFall spokesman David Smyth said: "Last week's increase has come as a surprise to most people.
"Although we always expected to see the recent downward trend to come to an end sooner or later, the timing and scale of the upswing is very encouraging."
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