Confidence in the retail and wholesale sectors hit its lowest level for a year in the last quarter due to worries over VAT and rising commodity prices.

In the past year the retail sector fared better than the UK average for growth in profits, sales and turnover. But Grant Thornton's latest Business Confidence Monitor found just 37% of companies were more confident about their economic prospects for the coming year down on the national average of 46%.

"Christmas trading was likely to have been strong, due to consumers bringing forward their purchases to avoid the VAT rise, but ­despite this, retailers have realistically lowered their expectations for 2011 and many should prepare for a possible downturn in the mid-term," said Grant Thornton head of retail Barry Knight.