Consumers are tightening their purse strings as the credit crunch continues.

Retail gloom is showing no sign of abating and is set to continue in 2008, a leading thinktank which monitors retail sector health has warned.

According to the KPMG/SPSL Retail Think Tank, the difficult trading on the high street at the end of 2007 looks set to worsen in the first quarter of 2008.

RTT said consumers will spend less due to falling disposable incomes, concerns over the credit crunch, uncertainty in the housing market and lower bonuses.

It added that whilst retail sales in value terms will grow, the rate of growth will continue to fall.

Helen Dickinson of KPMG said: “The tough year in 2007 looks set to become even harder in 2008. The RTT is predicting difficult conditions ahead with a further weakening of demand growth, erosion in margins and cost inflation outstripping top line growth.

“Demand is the most influential variable, so with the RTT stating that this driver is experiencing the most pressure, the first quarter of 2008 looks set to be challenging, particularly in the non-food sector.”

RTT concluded that the predications are the most pessimistic it has made since forming in 2006.

By Natasha Piscitelli