The buoyancy of the early summer trading is giving way to a more cautious mood as retailers prepare for the Christmas trading season, says PwC.

A mix of global and national factors, including the global debt crisis, stock market volatility and the fact that some businesses are counting the cost of the recent riots have cumulatively impacted on the feel good factor experienced at the start of the summer, such as the Royal Wedding and succession of Bank Holidays.

And with heavy discounting continuing among many retailers and the recent announcement by Harrods and Selfridges that they would be preparing for Christmas a month early, retailers are clearly concerned that consumer confidence may dip at a critical time.

Andy Lyon, partner and retail sector expert at PwC in the Midlands, said:

"Retail sales figures may have improved for a third consecutive month in July. However, conditions still remain extremely difficult for the majority of retailers and most are preparing for another cautious Christmas.

"There is a real fear that the majority of shoppers have already spent their budget on summer clothes and home improvements and have little left for the new season. Consumer confidence has taken a dip with any disposable income that might be left over being increasingly absorbed by high petrol prices and food inflation, which is currently at a two-year high. Concerns about job security are also having an impact on confidence."

According to PwC's latest UK Economic Outlook report, published on July 12, the rate of economic growth in the West Midlands is forecast to remain modest, rising to 1.3% in 2011 and 2.2% in 2012. The modest rate of UK GDP growth is in part due to the dip in consumer spending and the main driver of growth is currently net exports.

Andy Lyon, partner and retail sector expert at PwC in the Midlands, said:

"Interest rates have remained historically low for a while now, making people less inclined to save and more inclined to spend, but there is a danger that when the decision to increase rates comes, it will have a further negative impact on the High Street.

"The retail sector is more challenging this year as opposed to this time last year and those best-placed to survive will be those that have stocked conservatively."