July's year-on-year fall of 1.3 per cent was the first since records began in January 1989, according to the Office for National Statistics (ONS).
It said: "The drop suggests that prolonged discounting and price wars were having an effect on overall sales."
The grocery sector has become a price-cutting battleground as Tesco, Asda, Sainsbury's and Morrisons feel the squeeze from discounters Aldi and Lidl, who are gnawing away at their market share.
The headline figure for retail sales showed a weaker than expected 0.1 per cent growth month-on-month. However, a three-month on three-month increase of 0.3 per cent was the seventh consecutive improvement, the longest period of sustained growth by this measure since 2007.
Scottish retail sales fell by 1.8 per cent in July, according to data from the Scottish Retail Consortium which was published this week.