Online sales took a particularly heavy hit last month as shoppers limited unnecessary and luxury purchases.
They dropped 7.9 per cent last month following a 6.9 per cent fall in February, according to Office for National Statistics (ONS) figures.
Sales volumes as a whole fell 1.4 per cent in the month - faster than the 0.5 per cent drop in February, although they do remain 2.2 per cent above the pre-Covid levels of February 2020.
Economists warned the slump was likely to get worse as struggling households see the impact of the National Insurance hike as well as petrol, council tax and broadband cost rises and an almost £700 increase in energy bills.
Thomas Pugh, economist at RSM UK, said: “The 1.4 per cent drop in retail sales volumes is the first sign in the official data of the toll that the cost of living crisis is having on consumer spending and the economy.
“What’s more, there is worse to come over the next few months as the cost-of-living crisis is likely to worsen in April, with a hike in energy bills and taxes.
“The outlook for retail sales, which account for about a third of consumer spending, and the broader economy will depend on the willingness of households to use their savings to cushion the blow.”
It comes as the crisis and war in Ukraine meant the economy grew by just 0.1 per cent in February, far below the 0.8 per cent recorded in January.
UK inflation is rising at 7 per cent, its fastest rate for 30 years, and some have predicted it could spiral into double figures by the end of the summer.
Bills are expected to rise further in the Autumn when another increase in the cap on energy tariffs comes into effect.
Chancellor Rishi Sunak has attempted to soften the blow on some families with a £150 council tax rebate, a £200 energy bill loan and raising the NI threshold in July.
But Shadow Chancellor Rachel Reeves accused him of failing to understand the scale of the crisis.
She said: ”How many warnings signs does the Chancellor need before he grasps the seriousness of the cost of living crisis?”
Food store sales volumes fell by 1.1 per cent in March and have fallen each month since November 2021.
Car fuel sales fell by 3.8 per cent suggesting households are avoiding some non-essential road travel because of record high petrol and diesel prices.
The grim retail sales figures came as a long running index of consumer confidence plummeted to its second lowest level since it was launched in 1974.
The GfK Consumer Confidence Barometer slumped seven points to minus 38 points in April when huge increases in energy bills and higher National Insurance rates kicked in.
That was only one percentage point above the all time low of minus 39 recorded in the depths of the global financial crisis in July 2008.
Joe Staton, client strategy director at data provider GfK, said: “The cost crunch is really hitting the pockets of UK consumers and the headline confidence score has dropped to a near historic low.
“The scores looking at the next 12 months for our personal finances at -26 and the general economy at -55 are worse than the 2008 financial crash.”
He added: “This is dire news for consumer confidence and with little prospect of any economic relief on the horizon we can only forecast further falls in the Index for the year ahead.”
Meanwhile in further evidence of the pain being felt by households, one of London’s biggest energy suppliers EdF, said it had seen a 41 per cent increase in customer calls about bills they cannot pay over the winter.
The company said it is doubling the amount of money it has put aside to help customers with debts to £10 million.
Its own analysis has shown that among the 10 per cent lowest earning households the amount being spent on energy bills has risen from one pound in every £12 a year ago to one pound in every £8 now.
Another insight into shifting shoppers’ concerns came in a survey from central London business group New West End Company showing that 60 per cent more consumers would prioritise value for money than environmental impact.