The spending boost from the federal government’s stimulus package has ended, and retailers fear an upturn in interest rates will squeeze business over the next 18 months.

The Australian Bureau of Statistics released figures on Wednesday showing retail sales in July fell by 1 per cent.

The fall follows a 0.8 per cent drop in June and comes after the latest Access Economics forecast of a tough 18 months ahead for retailers.

Australian National Retailers Association (ANRA) chief executive Margy Osmond said the second consecutive fall in retail sales demonstrates government stimulus money has dried up.

“This is the second month in a row with a drop in retail sales, which I think makes pretty clear the stimulus package has more than washed through the economy,” she told reporters in Sydney on Wednesday.

“Interestingly enough, we’re seeing a drop in sales at a time when we’re seeing a surge in confidence, so quite clearly people’s confidence is not translating to the check-out.”

Retailers in NSW, Queensland and South Australia all recorded falls in sales greater than the national average of one per cent, with Victoria faring the best in the country.

Ms Osmond said retailers now feared an increase in interest rates and urged the Reserve Bank to hold fire.

“It’s clear we don’t need anything that will damage consumer confidence, especially in the lead-up to Christmas,” she said.

“The big risk is an increase in interest rates. If they start rising, people will cut back their spending.

“We would hope the Reserve Bank would in fact hold their powder dry on interest rates for some considerable period yet, as quite clearly it is going to have a dramatic effect on people’s willingness to spend.”

AAP