Rachel Reeves has been warned not to increase taxes on businesses again in her next Budget as retailers struggle to sell enough stock to cover spiralling costs.

Spending in the shops in July was up 2.5pc compared with the same month last summer, according to the British Retail Consortium (BRC), marking a slowdown from the 3.1pc growth registered in June.

It meant sales grew well below the latest inflation rate of 3.6pc, indicating that households are spending more but taking less home with them due to the accelerating pace of price rises.

The industry group said such weak sales in the face of higher taxes and regulatory costs meant that more shops risked having to shed staff or close altogether.

Similarly, figures from Barclays showed that spending on debit and credit cards last month increased by 2.4pc on the year.

Shoppers spent more on clothing amid the hot weather, with sales up 4.2pc, while pharmacy, health and beauty spending surged by 9.8pc. Barclays attributed this to the “lipstick effect”, where hard-pressed consumers splash out on smaller treats rather than making bigger purchases.

However, the figures showed households cutting back in other areas. Spending in department stores plunged 7.4pc, with customers also spending 4.3pc less on electronics than they did a year ago.

Helen Dickinson, the chief executive of the BRC, said families bought more furniture, games and toys throughout the summer, but that clothing sales tailed off over the course of July.

She warned that jobs and businesses are at risk from tax rises, which include the £25bn raid on employers’ National Insurance Contributions, as well as the recent jump in the National Minium Wage.

Ms Dickinson said: “With sales growth at these levels, it is barely touching the sides of covering the £7bn new costs imposed on retailers at the last Budget.

“If the upcoming autumn Budget sees more taxes levied on retailers’ shoulders, many will be forced to make difficult choices about the future of shops and jobs, and ongoing pressure would push prices higher.

“Ultimately, this means more families struggling, particularly those on lower incomes, reduced consumer spending and a drag on economic growth.”

Her warning comes after the National Institute of Economic and Social Research (Niesr) said the Chancellor’s plans have been forced so far off course that she faces having to raise taxes by more than £50bn to restore the public finances.

Niesr’s forecast suggested the upcoming Budget could be more painful than last year’s, after slowing economic growth, a weak jobs market and the cost of Labour’s about-turns on welfare spending put government finances deeper into the red.

A spokesman for the Treasury said: “We’ve been clear in our Plan for Change on the need to put more money in people’s pockets so that they can go out and spend which is why we boosted the national living and minimum wage, we extended the £3 bus fare cap and expanded free school meals to over half a million more children.

“Business confidence is also the highest in ten years according to a recent Lloyds Bank survey. Since the election, we have struck three major trade deals with the EU, US and India, business rates are being reformed, and corporation tax is capped at 25pc.”

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