The British Retail Consortium said two thirds of retailers responding to its Retail Prospects for 2011 survey said they expected retail sales to worsen compared with 2010.
But despite these fears retailers plan to go on investing and maintaining or creating jobs, the BRC said. Some 47 per cent of those surveyed planned to create jobs in 2011.
Stephen Robertson, BRC director general, said: "Our survey shows retailers expect a difficult December to be followed by a tough 2011.
"They believe the VAT rise will contribute to higher prices and, with fears about Government cuts and the wider economy, people will be put off spending.
"But the positive news is retailers have their eyes on the horizon and are demonstrating more faith in longer-term prospects. An encouraging proportion intends to increase investment and create jobs."
Robertson said the Government had to help retailers by cutting back costly regulations. He added that the overall impact the severe weather had on retail performance would be less severe than feared.
"We were expecting the final figures for December to be modestly up on last year but we now have to factor in the effects of the nightmare weather," he said.
"Despite the combination of snow and concerns about their money and job prospects, most customers were still determined to buy things they wanted for Christmas and did seize the opportunities they had to shop."
Heavy snowfall and freezing temperatures left many would-be shoppers stuck at home in the run up to Christmas. Retailers – such as sportswear firm JJB – warned the conditions could have a severe impact on overall performance.