UK retailers have suffered an unexpected year-on-year drop in sales volumes this month, and they have been cutting jobs amid fears the business situation is going to deteriorate significantly further, a key survey reveals.

The survey, from the Confederation of British Industry, continues the slew of worrying news about the consumer sector and the wider UK economy.

UK retailers had, overall, anticipated their sales this month would be higher than in the same period last year, but they turned out to be lower.

Of 76 retailers surveyed by the CBI between July 26 and August 15, 31% reported that their sales volumes were lower than at the same time last year, and only 27% said they were higher.

The rounded net 3% of retailers reporting a fall signals a modest year-on-year drop in volumes. A balance of 3% of retailers had projected a year-on-year rise in volumes this month, in the CBI's July distributive trades survey. The year-on-year fall in sales in August followed three consecutive months in which volumes had been higher than a year earlier.

Meanwhile, 26% of retailers cited an expectation the overall business situation would deteriorate over the next three months, while only 10% believed it would improve. The rounded net 17% forecasting a deterioration, which signalled the worst weakening of sentiment since February 2009, contrasts with a balance of 3% which predicted an improvement when this question was last asked by the CBI in its May survey.

In the latest survey, 41% of retailers said employment levels were down on a year earlier, and only 17% said they were higher.

This rounded net 25% reporting employment was lower than last August marked a big deterioration from May, when a net 12% of retailers reported a year-on-year rise in workforce levels.

The CBI noted 12 of 13 retail sub-sectors had seen a worsening of their year-on-year sales movements between its July and August surveys. The only one to buck the trend was footwear and leather, which enjoyed an acceleration of its year-on-year growth in sales volumes between July and August.

Touching on the Queen's Diamond Jubilee and the Olympics, Judith McKenna, chair of the CBI distributive trades panel, said: "Although this summer's events created a mood of celebration across the nation, these figures would suggest this positivity did not extend to the high street."

She took some comfort from the fact that a net 6% of retailers predicted a year-on-year rise in sales volumes in September.

However, a net 12% expected employment levels next month to be lower than last September.

Martin Beck, UK economist at consultancy Capital Economics, said: "[The] survey suggested the Olympics did little to boost retail sales. Recent bad news on petrol and energy prices, as well as rising borrowing costs, will dampen the chances of a pick-up in sales growth later this year."