High street retailers reported a greater-than-expected slowdown in sales growth this month, the CBI said, amid poor weather and weak consumer confidence.
A balance of 11% of retailers said sales volumes were higher than a year ago this month, which was a weaker reading than companies had predicted in June.
Businesses also reported higher orders in July, with a balance of 5% reporting growth, but again this was lower than anticipated, the CBI said.
Judith McKenna, chair of the CBI Distributive Trades Panel and Asda's chief operating officer, said: "With consumer confidence weak and wage growth remaining sluggish, the longer term outlook for retailers remains challenging."
The survey results were published as a PricewaterhouseCoopers (PwC) study showed an increase in the number of insolvencies among retailers rising to 426 in the second quarter, up from 386 the previous year.
Looking ahead, retailers expect both sales and orders growth to slow down further, the CBI said, with both expected to be effectively flat on a year ago in August. Furniture, clothing and food sales all saw growth but at a slower rate than June, the CBI added.
Chris Wilson, economist at financial information services firm Markit, said: "Firms are perhaps adjusting to the reality that sales will remain depressed due to the combination of low demand for seasonal ranges due to the poor summer weather, plus the ongoing financial headwinds faced by households."
The wash-out start to the summer was blamed for the 10.3% rise in retail collapses between April and June, PwC said. With high profile failures including Julian Graves, Clinton Cards and Game, the number of casualties has been escalating year-on-year for each of the past four quarters.
Insolvencies across the wider economy, including other sectors such as construction and manufacturing, were down 3% on the previous year. This adds weight to suggestions that recent official figures showing that gross domestic product (GDP) declined 0.7% in the quarter may be overestimating the severity of the double-dip recession.
PwC retail specialist Mike Jervis said: "There has been a clear reduction in the incidence of insolvencies over the current recession compared to previous ones, but retail is the sector which keeps bucking this trend."