A survey by the British Chambers of Commerce (BCC) found nearly half of all firms (43 per cent) saw sales fall in the final three months of 2020, rising to more than three-quarters (79 per cent) in the hammered hospitality and catering sector.
This compares with 66 per cent of hospitality and catering firms in the third quarter.
Its quarterly economic survey revealed the toll taken on consumer-facing firms from the November lockdown, with the latest restrictions adding to their misery.
Some 26 per cent of the 6,203 firms polled for the survey reported rising sales, while 30 per cent said there was no change.
Suren Thiru, head of economics at the BCC, said: “These results indicate that economic activity was strikingly downbeat in the final quarter of 2020 as the reintroduction of tighter coronavirus restrictions weighed heavily on the key drivers of growth.
“The services sector endured a particularly difficult quarter, with consumer-facing businesses most severely exposed to the renewed restrictions,” adding, “Though the vaccine rollout provides real optimism, a new national lockdown means that a significant double-dip recession in the first quarter of this year is looking increasingly likely.”
Manufacturers enjoyed an improvement in orders at the end of last year, with the balance of firms reporting increased domestic sales increasing to minus 9 per cent, up from minus 15 per cent in the third quarter.
The balance of firms reporting increased export sales increased to minus 8 per cent from minus 26 per cent in the previous three months.
But the BCC said this was largely down to a temporary boost from Brexit stockpiling ahead of the year-end deal deadline.
It also found that cash flow – a key indicator of business health – in the services sector remained at levels not seen since the financial crisis, despite a slight improvement in the fourth quarter.
The BCC said 43 per cent of firms overall saw worsening cash flow, with just 21 per cent reporting an improvement.
Its survey took place during the second lockdown in England and 94 per cent of respondents were small businesses.